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PPF, how it works, and its relationship with efficiency and opportunity cost.
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Production possibilities curve
An introduction
• Compare 2 variables; goods or services
• Trade-offs or opportunity cost involved
• All available resources are fully employed
• All available technology is fully employed
• Productive efficiency: Resources are employed in the least costly way
Abstractions and Assumptions of a PPC
What type of curve illustrates the label below?
Increasing opportunity
cost
per unit of good B
What type of curve illustrates the label below?
Increasing opportunity
cost
per unit of good B
What type of curve illustrates the label below?
Zero opportunity
cost
per unit of good B
What type of curve illustrates the label below?
Zero opportunity
cost
per unit of good B
improbable
What type of curve illustrates the label below?
Constant opportunity
cost
per unit of good B
What type of curve illustrates the label below?
Constant opportunity
cost
per unit of good B
What type of curve illustrates the label below?
Decreasing opportunity
cost
per unit of good B
What type of curve illustrates the label below?
Decreasing opportunity
cost
per unit of good B
Impossible; not
supported by
economic theory
• What trade-offs are involved?
• Why is the PPC concave?
• What does point (E), inside the PPC illustrate?
• What is the significance of point (F), outside the PPC?
• Under what conditions can point F be reached?
Moving from point B to point A, could eventually expand the frontier from G,G to H,H
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