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Production Possibilities Frontier

The document discusses the production possibilities frontier (PPC), which shows the maximum combinations of two goods an economy can produce with its existing resources and technology. The PPC is concave, representing increasing opportunity costs, and can shift outward with increased resources or technology.

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KINGS Group
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22 views

Production Possibilities Frontier

The document discusses the production possibilities frontier (PPC), which shows the maximum combinations of two goods an economy can produce with its existing resources and technology. The PPC is concave, representing increasing opportunity costs, and can shift outward with increased resources or technology.

Uploaded by

KINGS Group
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Lecture 2: Production Possibilities

Frontier
production possibilities frontier

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Production Possibilities Frontier

 What it shows: the maximum combinations of two goods an economy can produce with
its existing resources and technology; an economy can produce at points on or inside its
PPC but points outside the curve are unattainable
 full employment: points inside the PPC are inefficient and represent large scale
unemployment because the economy could produce more of both goods while points on
the PPC are efficient and consistent with full-employment of resources
 Shape: the PPC is concave or bowed out away from the origin because of increasing
opportunity costs resulting from specialized resources (resources are not equally suited to
producing all products)
 Shifts: the PPC will shift outwards reflecting an increased capability to produce goods
and services when (1) there are increases in the quantity or quality of resources or (2) if
there is technological improvement
David A. Latzko
Business and Economics Division
Pennsylvania State University, York Campus
office: 13 Main Classroom Building
phone: (717) 771-4115
fax: (717) 771-4062
e-mail: dlatzko at psu.edu
web: www.yk.psu.edu/~dxl31

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