Download The production possibility frontier shows the

The production possibility frontier shows the combinations of output
that could be produced using available inputs.
LEARNING OBJECTIVES [ edit ]
Discuss the use of the production possibility frontier (PPF) in determining the possible
combinations of output in an economy
Explain the benefits of trade and exchange using the production possibilities frontier (PPF)
KEY POINTS [ edit ]
The production possibilities curve shows the maximum possible production level of
one commodity for any production level of another, given the existing levels of thefactors of
production and the state of technology.
Points outside the production possibilities curve are unattainable with existing resources and
technology if tradedoes not occur with an external producer.
Without trade, each country consumes only what it produces. However, because of specialization
and trade, the absolute quantity of goods available for consumption is higher than the quantity
that would be available under national economicself­sufficiency.
TERMS [ edit ]
Production possibilities frontier
A graph that shows the combinations of two commodities that could be produced using the same
total amount of each of the factors of production.
Autarky
National economic self­sufficiency.
Give us feedback on this content: FULL TEXT [ edit ]
In economics, the production possibility frontier (PPF) is a graph that shows the
combinations of two commodities that
could be produced using the same total
amount of the factors of production. It
shows the maximum possible production
level of one commodity for any production
level of another, given the existing levels
of the factors of production and the state
of technology.
PPFs are normally drawn as extending
outward around the origin, but can also be
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represented as a straight line . An
economy that is operating on the PPF is productivelyefficient, meaning that it would be
impossible to produce more of one good without decreasing the production of the other
good. For example, if an economy that produces only guns and butter is operating on the
PPF, the production of guns would need to be sacrificed in order to produce more butter . If
production is efficient, the economy can choose between combinations (i.e., points) on the
PPF: B if guns are of interest, C if more butter is needed, or D if an equal mix of butter and
guns is required.
Quantity of Guns Produced
B
X
D
A
C
Quantity of Butter Produced
Production Possibilities Frontier
If production is efficient, the economy can choose between combinations on the PPF. Point X, however, is
unattaible with existing resources and technology if trade does not occur.
If the economy is operating below the curve, it is operating inefficiently,
because resources could be reallocated in order to produce more of one or both goods
without decreasing the quantity of either. Points outside the curve are unattainable with
existing resources and technology if trade does not occur with an outside producer.
The PPF will shift outwards if more inputs (such as capital orlabor) become available or if
technological progress makes it possible to produce more output with the same level of
inputs. An outward shift means that more of one or both outputs can be produced without
sacrificing the output of either good. Conversely, the PPF will shift inward if the labor
force shrinks, the supply of raw materials is depleted, or a natural disaster decreases the
stock of physical capital.
Without trade, each country consumes only what it produces. In this instance,
the production possibilities frontier is also the consumption possibilities frontier. Trade
enables consumption outside the production possibility frontier. The world PPF is made up
by combining countries' PPFs. When countries' autarkic productions are added (when there
is no trade), the total quantity of each good produced and consumed is less than the world's
PPF under free trade (when nations specialize according to their comparative advantage).
This shows that in a free trade system, the absolute quantity of goods available for
consumption is higher than the quantity available under autarky.