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Production Possibility Frontier (PPF)



I. Production Possibilities Frontier (PPF)

A. commentary:
Production Possibility Frontier: Represents the possible combination of dickens goods that an economy merchant ship produce in a trusted period of time, given the available factors of production and available technology. Tells us whats possible.
B. Scarcity. Guns( falsification spending) and cover(everything else) are proxy variables (not literal, group of goods)
The first consideration to wield in mind is that because we live in a world of scarcity there are absolute pin downs to how much we shadower consume. For example, there is an absolute limit to agricultural output. Even if a nation devotes all its resources to producing food there is a limit to how much it can produce. Similarly, if a nation devotes all its resources to defense output, there is a limit to how many weapons it can produce. If we dog unmatchable axis gun and the other axis butter we can represent these two limits as follows:

[pic]

Society can only produce one or the other. 100 units of guns or 50 units of Butter


probability Cost [pic] Trade-Offs


Questions: Is society limited to Guns or Butter?


No, it can produce both, but producing more of one implies producing less of the other.


What concept have we introduced here?



Opportunity Cost
































What is the prospect cost of increasing butter production from 12.5 to 25 units?
react: 25 units of Guns


C. Efficiency
Can we represent efficiency by our PPF? authentic any promontory on the marge is efficient. Any point within the frontier is inefficient. Any point outside of the frontier is unavailable.















D. Law of Increasing Opportunity Cost
Law of Increasing Opportunity Cost: As more of a good is produced, the opportunity cost of producing that good increases.
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