Production Possibilities Frontier Flashcards, test questions and answers

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What is Production Possibilities Frontier?

The Production Possibilities Frontier is a graphical representation of the possible combinations of two goods or services that an economy can produce, given its available resources and technology. It is used to illustrate various economic concepts such as opportunity cost, scarcity and efficiency. The Production Possibilities Frontier (PPF) is also sometimes referred to as the production possibilities curve or PPC. The PPF shows all possible combinations of two goods that can be produced in an economy given its available resources and technology. It demonstrates how much one good must be sacrificed in order to produce more of another good, known as the opportunity cost. This concept helps explain why we cannot have unlimited amounts of everything – it depicts a trade-off between two items that must be made since resources are limited. The PPF is usually presented in a graph with the x-axis showing one good and the y-axis showing another. Points on the curve represent different combinations of these two goods which can be produced with currently available resources and technology; points inside the curve represent inefficient production levels while points outside show production levels beyond what is achievable due to scarcity of resources or lack of technology. The points at each end of the curve are known as production efficiency limits since they represent maximum output for both goods; if either good were increased further then it would require sacrificing some amount of the other, leading us back along the curve towards this point on its perimeter. In conclusion, though simple in concept, Production Possibilities Frontiers provide an invaluable visual tool for economists to help explain important economic concepts like opportunity cost, scarcity and efficiency in terms which can easily understood by students and laypeople alike.