Saturday, April 5, 2008

The Production Possibilities Frontier (PPF)

Economic Model #2: The Production Possibilities Frontier

The production possibilities frontier (PPF) is a model that can be used to illustrate scarcity, tradeoffs, opportunity costs and the benefits of specialization and trade.

A production possibilities frontier (PPF) is a diagram that illustrates the possible production points for an economy based on its resources and technology. A frontier is a boundary. The wild frontier in American history refers to the boundary between civilization and the parts of the country that were not yet settled. A PPF is the boundary between combinations of output that are possible with current resources and technology and those output combinations that are not possible. The production possibilities curve (PPC) is another name for the PPF.

INSERT DIAGRAM HERE.
Figure 3-2. A Production Possibilities Frontier (PPF) for an economy than can produce guns (or more generally, military products) and butter (or more generally, civilian products).

A PPF can illustrate two types of output. For example, Figure 2 illustrates a production possibilities frontier where the two outputs are guns (or more generally, military products) and butter (or more generally, civilian products). The quantity of one output is graphed on the horizontal (X) axis and the quantity of the other output is graphed on the vertical (Y) axis. For example, in Figure 3-2, the quantity of guns (military products) is graphed on the vertical (Y) axis and the quantity of butter (civilian products) is graphed on the horizontal (X) axis.

Production points on a PPF are possible and efficient. Production points on a PPF represent efficient use of all of the economy’s resources. It is impossible to produce more of one product (measured on one axis) without producing less of the other product (measured on the other axis).

Production points inside a PPF are possible, but inefficient. Production points inside a PPF indicate the economy is either not using all of its resources (e.g., there is unemployment) or is using them inefficiently (e.g., growing oranges in Kansas and wheat in Florida).

Points outside the PPF are unattainable production points given current resources and technologies. It is impossible for an economy to produce outside its PPF. The PPF can change, however, with changes in resources or technology. Additional resources and improvements in technology push the PPF further away from the origin. A loss of resources moves the PPF toward the origin.

Points outside the PPF might be attainable consumption points, however. Consumption points outside the PPF may be obtained through specialization and trade if there is a willing trading partner.

4 comments:

  1. Respected Sir, What other names are used instead of production possibility frontier? kindly if u can email me at saqib-khan86@hotmail.com ill be very thankful to u for this act of kindness
    Regards,
    Saqib

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  2. Production Possibilities curve

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  3. Or the Production Possibility Boundary

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  4. Points outside the PPF are possible but unsustainable in the long run given ceteris paribus. If the axes of the graph were military items and butter then you could imagine people working 23 hours a day, wood being used at a rate that depleted forests at an unsustainable rate, cows being milked so often that it would eventually exhaust the cows, ect. Production in this case would exceed the PPF, the set of efficient points, but would be unsustainable in the long run and fall back to or more likely below the curve if every other factor is held equal. The paragraph in this explanation about points outside the PPF being impossible is not accurate.

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