What purpose does production possibility frontier serve (PPF)?What is the point or what does it show?
The main point of production possibility frontiers is to illustrate the concept of opportunity cost.
Economically speaking, every decision has an opportunity cost. Whenever one chooses to use resources for one thing, those resources cannot be used for something else. If the US economy chooses to make x number of tanks, the materials that went into those tanks cannot be made into cars.
A ppf illustrates that concept. It shows that as an economy produces more of one thing, it has to produce less of something else (assuming that it is producing at 100% of its capacity).
Additionally, ppfs are used to illustrate the ideas of efficiency and inefficiency (by points on or within the line, respectively). They also help us understand that economic growth involves being able to make more of one of the goods without having to sacrifice some of the other.
Production possibility frontier is a curve on a graph that depicts combination of quantities of different goods that can be produced by an economy with the fixed quantities of factors of production available with it. A point on the curve represents situations when the combination of goods produced will utilize full available quantity of at least one of the factors of production completely. In this situation production of any good cannot be increased without increasing the quantity of this factor of production, or reducing production of some other good. A point inside the curve indicates combination quantities of goods produced will underutilized at all the factors of production to some extent. This represents a situation that is inefficient. A point outside the production possibility frontier represents a combination of quantities of different goods that cannot be achieved practically with the existing quantities of factors of production available.
The production possibility frontier is useful in taking meaningful decisions on allocating the resources of economy to different sectors of development, and on different types of goods. It enable to identify what is possible, compare it with what is desirable, and identify resource gaps for achievement of the desirable.
PRODUCTION POSSIBALITY CURVE REPRESENTS GRAPHICALLY ALTERNATIVE PRODUCTION POSSIBALITIES FACING AN ECONOMY.AS THE TOTAL PRODUCTIVE RESOURCES OF THE ECONOMY ARE LIMITED,THE ECONOMY HAS TO CHOOSE BETWEEN DIFFERENT GOODS .
A PPC SHOWS THE DIFFERENT POSSIBLE COMBINATION OF TWO GOODS WHICH CAN BE PRODUCED BY AN ECONOMY WHEN IT USES ALL OF ITS RESOURCES FULLY AND EFFICIENTLY.
A PPC SLOPS DOWN TO THE RIGHT AND IS USUALLY DRAWN CONCAVE TO THE ORIGIN.
WHEN WE DRAW A PPC WE ASSUME:
- THERE IS A GIVEN AMOUNT OF PRODUCTIVE RESOURCES.
- THE EDUCATION AND SKILLS OF ITS LABOUR FORCE REMAIN CONSTANT
- RESOURCES ARE FULLY EMPLOYEED AND MOST EFFICTIVELY UTILISED
- THE TECHNOLOGY OF PRODUCTIONREMAINS CONSTENT
PPC IS AN IMPORTANT TOOL FOR MODERN ECONOMIES . THIS IS USED TO REPRESENT AND EXPLAIN THE CENTERAL PROBLEM OF AN ECONOMY. WITH THE HELP OF THE CURVE WE CAN SOLVE THE FOLLOWING PROBLEMS:
- ALLOCATION OF RESOURCES
- UNEMPLOYMENT OF RESOURCES
- ECONOMIC GROWTH
THE PPC IS ALSO USED IN ASSESSING A COUNTRIES ECONOMIC PERFORMANCE.
The ppc curve shows how much a country can make of two goods. It slopes down to the right. Any point on the curve is efficient. Any point inside the curve is underutilizing resources. Any point outside the curve is not possible with the current technology and labor force. The more of one good the less of the other