Production Possibility Frontier (PPF) is an economic term that simply represents a curve of the maximum combination of output an economy can produce with the given resources at various levels. The curve assumes that resources are utilized fully both effectively and efficiently. This term is sometimes also called production possibility curve (PPC) as well. The shape of the curve is generally bowed outward. But why is it so? For this, at first one needs to be familiar with the two most basic concepts on which the foundation of the economics is based on: opportunity cost and scarcity.
Scarcity is one economic term that implies the situation those resources will be always being scarce to meet the needs and wants of the people. The second concept implies the fact that there’s always a situation of at least more than one best alternative, and the best alternative forgone is the opportunity cost. The PPF curve relates these two concepts to form its own curve with that â€˜bowed outward’ shape. These graphs are two dimensional and traditionally, economists use capital and consumer goods on the respective axes. Suppose you have 20000 resources with which you can produce either of two outputs or a combination of both. This unit mentioned is at maximum, and hence, can’t exceed this level until the economy faces an economic growth. Now, if you decide to utilize 15000 resources with output X, 5000 of the rest resources will be utilized for output Y. Again, if you decide to utilize 7000 resources with output Y, you will be left with 6000 resources to produce output X. The point is you cannot exceed the amount of resources available as they are scarce and limited.
The PPF simply follows these concepts and ideologies that are built in with the concepts of scarcity and opportunity cost combined. All in all, the opportunity cost of a product rises as more resources are allocated to producing one product from the limited resources, leaving out fewer resources for the other. Hence, this makes the curve bowed outward.Similar Posts: