Production Possibilities Curve (PPC) aka PPF(production possibilities
frontier)
PPC/PPF is a model that shows alternative ways that an individual or economy can make tradeoffs
with scarce resources
graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency.
Key assumptions •Only two goods can be produced •Full employment of resources •Fixed
Resources (Ceteris Paribus - other things being equal) •Fixed Technology
Being inside the PPF means factors of production are not being used efficiently. Being
outside the PPF is an unattainable situation given current factor endowments
Observations:
i. Shape of PPC gives us information on the production technology (in other words, how
the resources are combined to produce these goods).
ii. Not all costs are monetary costs
iii. Going from an inefficient amount of production to an efficient amount of production is
not economic growth.
iv. if this economy is making as many products as it can, and it acquires more machines, it
has experienced economic growth because it now has more resources
v. The downward slope of the curve represents tradeoffs.
vi. If opportunity cost is constant or increasing for one of the goods, it is constant or
increasing respectively for both goods.
vii. A free good has zero opportunity cost.
Production "possibilities" Each point represents a specific combination of goods that
table can be produced given full employment of resources
frontier)
PPC/PPF is a model that shows alternative ways that an individual or economy can make tradeoffs
with scarce resources
graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency.
Key assumptions •Only two goods can be produced •Full employment of resources •Fixed
Resources (Ceteris Paribus - other things being equal) •Fixed Technology
Being inside the PPF means factors of production are not being used efficiently. Being
outside the PPF is an unattainable situation given current factor endowments
Observations:
i. Shape of PPC gives us information on the production technology (in other words, how
the resources are combined to produce these goods).
ii. Not all costs are monetary costs
iii. Going from an inefficient amount of production to an efficient amount of production is
not economic growth.
iv. if this economy is making as many products as it can, and it acquires more machines, it
has experienced economic growth because it now has more resources
v. The downward slope of the curve represents tradeoffs.
vi. If opportunity cost is constant or increasing for one of the goods, it is constant or
increasing respectively for both goods.
vii. A free good has zero opportunity cost.
Production "possibilities" Each point represents a specific combination of goods that
table can be produced given full employment of resources
