What is the main point of production possibility frontier?

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There are at least two main points of a production possibilities frontier (PPF) (also called a production possibilities curve).  A PPF shows the hypothetical amounts of two goods (or types of goods) that an economy could produce.  In other words, a PPF might show, for example, the various combinations of how many trucks and tanks an economy could produce.  These two points are to illustrate the ideas of A) opportunity cost and B) increasing costs.

In a PPF, the economy produces two different products in various combinations.  One point of a PPF is to show that, in order to get more of one product, the economy has to give up some of the other product.  In other words, if the economy wants to produce more tanks for the military, it has to produce fewer trucks for civilians.  This illustrates the idea of opportunity cost.  Every time you produce more of one thing, you pay the price for doing so by producing less of the other thing.

The curve in a PPF is not linear.  At first, its slope is gentle, but it then gets steeper.  The reason for this is the idea of increasing costs.  Increasing costs happen because an economy’s resources will be better suited to one kind of good than to another.  Imagine that the two goods in the PPF are wheat and apples.  Some of the country’s land is equally good for both, so when farmers start to grow apples instead of wheat, they don’t lose much overall production.  But the land gets worse and worse for apples.  The more apples the farmers grow, the more wheat they have to give up because their land is really better for wheat than for apples.  This is the idea of increasing costs.

These are the two main points that make the PPF a staple of basic economics textbooks.

 

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