A production-possibility frontier (PPF) graphs the combinations for the
production of two commodities with which the same amounts are
used.
LEARNING OBJECTIVES [ edit ]
Explain the benefits of trade and exchange using the production possibilities frontier (PPF)
Discuss the use of the production possibility frontier (PPF) in determining the possible
combinations of output in an economy
KEY POINTS [ edit ]
A PPF graph shows the maximum production level for onecommodity for any production level of
the other commodity.
If a point on the graph is above the curve it indicates efficiency, while a point below the curve
signifies inefficiency.
The PPF graph shows how resources must be shared among goods during the production process.
Within an economy, if the capacity to produce both goods increases which results in economic
growth.
TERMS [ edit ]
commodity
Raw materials, agricultural and other primary products as objects of large-scale trading in
specialized exchanges.
marginal
Of, relating to, or located at or near a margin or edge; also figurative usages of location and
margin (edge).
Give us feedback on this content: FULL TEXT [edit ]
Within a market system, economists use
the production possibility frontier (PPF) to
graph the combinations of the amounts of
two commodities that can be produced
using the same amount of each factor of
production. A PPF graph chooses
specific input quantities. As a result, it
shows the maximum production level for
one commodity for any production level of
the other commodity . PPF is used to
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define production efficiency.
B
Quantity of Guns Produced
- 50
-5
A
C
D
+10
Quantity of Butter Produced
A common PPF
A common PPF where there is an increase in opportunity cost.
+10
Within a PPF graph, the use of a curve or line acts as a benchmark for measuring efficiency. If
a point on the graph is above the curve it indicates efficiency, while a point below the curve
signifies inefficiency. For further analysis, additional information is always supplied with a
PPF including the period of time taken for the observation, production technologies, and the
amounts of inputs that were available.
Economists can use a PPF to illustrate a number of economic concepts including scarcity,
opportunity cost, productive efficiency, allocative efficiency, and economies of scale.
When an economy is operating on the PPF curve it is efficient. It is not possible to produce
more of one good without decreasing the amount produced for the other good. Likewise, if
the economy is operating below the PPF curve, it is inefficient. In this case, the economy can
reallocate resources and produce more of both the goods.
The PPF graph shows how resources must be shared among goods during the production
process. The points of the graph show the trade-off that takes place between two goods. For
example, if more of Good A needs to be produced, the amount of resources in use by Good B
must be reduced and transferred to Good A. The sacrifice in production of Good B is
calledopportunity cost. When graphing PPF there are three types: the common, the straight
line, and the inverted PPF . All three of the PPF graphs are directly influenced by
the opportunity cost.
B
C
-5
Quantity of Guns Produced
- 50
A
+10
Quantity of Butter Produced
An inverted PPF
An inverted PPF where the opportunity cost is decreasing.
+10
D
Quantity of Guns Produced
- 25
A
B
- 25
C
D
+10
Quantity of Butter Produced
+10
A straight line PPF
A straight line PPF where the opportunity cost is constant.
The slope of the PPF shows the rate at which the production of one good can be transferred to
another. The slope is called themarginal rate of transformation (MRT).
Within an economy, if the capacity to produce both goods increases, the result is economic
growth. Factors that influence economic capacity include technology, an increase in
the supplyof factors of production, and production interactions such as trade and exchange.
When any of these factors are used it allows for an increase in capacity so that the production
of neither good has to be sacrificed.
PPF graphs help economists study the current state of production as well as possible
production scenarios. The outputof the economy is impacted by many factors. When
production can be graphed and monitored it allows adjustments to be made to work towards
attaining economic growth and stability.