Topic 4 :

Production Possibility
Curve
Production Possibility Curve (Frontier) also
known as PPF
• Production – output of goods and services
• Possibility – maximum attainable amount
• Frontier – border or boundary
• PPF shows the boundary of what is possible
and is used as an illustration in economics to
show the choices facing all countries in
producing goods which use limited factors of
production.
 Production Possibility Frontiers
O Show the different combinations of goods
and services that can be produced with a
given amount of resources
O Any point inside the curve – suggests
resources are not being utilised efficiently
O Any point outside the curve – not attainable
with the current level of resources
O Useful to demonstrate economic growth
and opportunity cost
 Production Possibility Frontiers
If it If the country is at point A on the PPF It
reallocates its can produce the combination of Yo
resources
Capital Goods
(moving round capital goods and Xo consumer goods
the PPF from
Ym
A to B) it can
produce more Assume a country
consumer can produce two
goods but only Yo
A
types of goods with
at the its resources –
expense of capital goods and
fewer capital consumer goods
goods. The
opportunity Y1
B If it devotes all
resources to
cost of capital goods it
producing an could produce a
extra Xo – X1 maximum of Ym.
consumer If it devotes all its
resources to
goods is Yo – consumer goods
Xo X1 Xm Consumer Goods
Y1 capital it could produce a
goods. maximum of Xm
 Production Possibility Frontiers
Production
inside the PPF
Capital Goods – e.g. point B
means the
country is not
C using all its
Y1
resources
Yo A
It can only produce at
points outside the PPF if it
finds a way of expanding
its resources or improves
the productivity of those
resources it already has.
. B

This will push the PPF

further outwards.

Xo X1 Consumer Goods
What makes the PPF move outwards?

• Training the workforce/education

• Increase in land size/quality
• Immigration
• Investment in capital goods
• Increase in population
• Improvement in technology
• Raising retirement age
• Any quantity and qualitative change in
F.O.P
 What makes the PPF move inward?

• War
• Disasters
• Disease/Pandemic
• Emigration
• Loss of land size