When using a production possibilities frontier (PPF) how can you tell which combinations are efficient and inefficient based on their position on the graph?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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When using a production possibilities frontier (PPF), you can tell which combinations of goods are efficient and which are inefficient simply by looking at where a given point is relative to the curve itself.  On the graph of a PPF, there is a curve.  That curve represents the best possible combinations of two goods (or kinds of goods) that the economy can produce.  Any spot on that line is efficient.  There is no way that the economy can do any better than that unless it gets more resources and the PPF itself moves to the right.  By contrast, any spot inside the convex curve line is inefficient.  If the economy is producing a combination that falls inside the line, it is not living up to its potential.

So, the rule is that any point on the line is efficient and any point inside the convex curve line is inefficient.


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