The Production Possibility Frontier Shows all the combinations of two or more goods that can be produced using all available resources efficiently Is concave to the origin since productivity of allocating more and more resources to one good will fall (harder to squeeze out the last production) Good A Good B

Production Possibility Frontier Good A Not currently possible but may be possible in the future Inefficient and below potential Good B Efficient and maximised production

Production Possibility Frontier Illustrates the concept of Opportunity Cost – in order to have more of one thing you must have less of another (Reminder: the cost of an economic choice in terms of the next best alternative foregone.) Good A Good B

Production Possibility Frontier Good A New max. possible output Old max. possible output Good B The PPF can shift outward with the discovery or creation of new resources which were previously unavailable. Thus more of everything can be produced. (It can also shift inward with the destruction or reduction of resources.)

Production Possibility Frontier Good A New max. possible output Old max. possible output Good B The PPF can shift outward asymmetrically if there is an increase in resources for only one good. So each combination includes more of that good. (here good B)

Production Possibility Frontier Capital Goods More current welfare, less future welfare. Less current welfare, more future welfare. Consumer Goods The PPF can represent the productive capacity of the whole economy which produces both of consumer and capital goods. Since capital goods are used to produce consumer goods, some resources must be devoted toward producing both.

Production Possibility Frontier What could increase the PPF?  natural resources found  population (labour)  technology  infrastructure for production