LearnPPFWhat is a PPF Graph?A common way for economists to illustrate the opportunity costs of decisions is with the production possibilities frontier (PPF). The PPF graphically represents the point at which an economy is most efficiently producing its goods and services and, therefore, allocating its resources in the best way possible. Here is an example of a PPF: Show This graph is a curve extending from Point A on the positive y-axis to Point D on the positive x-axis.
We make the following assumptions about the PPF:
Open Production Possibilities Frontier (PPF) (8:37) in a new tab Practical ApplicationNow that we know the basics of the PPF we can talk about a practical application. In an earlier section we talked about Guns v. Butter. Even nations must make choices. The graph below shows a country's decision points. A country can have a very large military (army tanks), but have no resources left for civilian goods, which in this case is represented by cars. See larger version of Army Tanks and Cars PPF graph here. See long description of Army Tanks and Cars PPF graph here.This Production Possibilities Frontier (PPF) graph is a curve extending from Point A on the positive y-axis to Point D on the positive x-axis.
Consider these questions:
PPF Graphs and Opportunity CostsWith the basic questions of what the graph represents, we can now illustrate the concept of opportunity cost.
As you can now see the idea of opportunity cost is represented very well by the PPF. To get more of one item you must give up another item. What is an inefficient point on a graph?Points that lie strictly to the left of the curve are said to be inefficient, because existing resources would allow for production of more of at least one good without sacrificing the production of any other good. An efficient point is one that lies on the production possibilities curve.
Which point on the graph represents an inefficient use of resources?Point X represents an inefficient use of resources, while point Y represents a goal that the economy simply cannot attain with its present levels of resources.
What is an inefficient point on a production possibilities curve?Answer and Explanation: Inefficient: any point inside and to the left of the PPC curve is inefficient. This is because the economy is not producing at full employment and efficiency, and can improve itself. Efficient: any point on the PPC is efficient.
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