Econ 2000 Chp 2 Production Possibility Frontier (PPF)
Assuming limited resources are aligned in such a way that goods maybe produced;
there must be limits to what can be produced
In analyzing such limits and tradeoffs the PPF is a tool for comparing the production of 2
goods
Conditions of the Model
1. Only 2 goods in question
The tradeoff of production, give and take of choosing one vs. another is
the dominant theme
Representative goods
Ex: Coke vs. Potato chips
Guns vs. butter (defense vs. domestic spending)
2. Fixed time duration
The PPF addresses production capability as it exists during a specific time
frame
Why important: what may or may not be possible later is not the issue, it is
about what can be done now
3. Possible Production gives the available technology and using fully employed
resources
Again moving out possible levels of production, the point is, what can be
produced
The word “frontier” implies what lies at the edge/margin, thus, the model examines the
farthest reaches of possible outcome
Opportunity cost
Every choice entails selecting one option over another, where by an opportunity cost will
be incurred when the PPF is no different
Over range of PPF each point represents different levels of goods X and good Y
Whether moving from all X, all Y or somewhere in between opportunity cost arises
Straight line PPF
When frontier of production features a straight line with a constant slope this condition
reflects constant opportunity costs
Why constant: the forgone opportunity is the same when choosing between any level of
output
