Production Possibility Frontiers (PPFs) - Microeconomics

A production possibility frontier (PPF) shows all maximum output possibilities for two goods/services, with a given a set of inputs (resources and other factors). 


PPF’s can be used to depict:

• The maximum productive potential of the economy
• The opportunity cost (i.e. trade-off)
• Economic growth or decline shown by shifts of the curve
• Efficient or inefficient allocation of resources
• Possible and unobtainable production

​Capital goods are used to produce other goods.  Consumer goods are purchased as products.

When a PPF is drawn, it should touch both axis, and be labelled appropriately.
A PPF can be drawn for two products, or two categories of products – e.g. capital and consumer goods.

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• Point B, and every other point that is on the PPF, are all only achievable when all available resources are used as efficiently as possible to produce the maximum possible output.  This is productive efficiency.  However, not all points on the PPF are allocatively efficient – they don’t all reflect the wants and needs of consumers.
  
  
• Point C lies outside the PPF, meaning that it is an unattainable level of production with the current resources at hand.  More resources are needed to meet this production.
  
  
• Point A lies inside the PPF, i.e. this point of production is productively inefficient.  With the current resources at hand, more capital goods can be produced without an opportunity cost of consumer goods (and vice versa).
  
  
• A shift along the curve of a PPF shows a change in an agent’s priority of producing goods, i.e. if they want to produce more consumer goods than capital goods, the point would move rightwards along the curve.