1.1.4 - PPF

• The PFF shows the maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology
• Consumer goods are goods that are demanded and bought by households and individuals
• Capital goods are goods that are produced in order to aid the production of consumer goods in the future
• PPF curves can show the opportunity cost of using the scarce resources
• Producing at points A and B are the most efficient combinations of output on the PPF

  
• Producing at C or D is inefficient, and resources are not used to their full productive potential.

  
• Producing at E is not yet attainable with the current resources.

  
• PPF curve efficiency

  A) not yet attainable

  B) most efficient

  C) inefficient

  
• Economic growth can be shown by an outward shift in the PPF, from the curve with point A on it, to the curve with point B on it.

  
• Change in production:

  • The diagram below shows a fall in capital production but no change in consumer production. This shows a fall in efficiency or a change in resources that only affects capital good manufacture.

  
• Change in production

  • The diagram below shows an increase in the ability to produce consumer goods but no change in capital goods which could be due to an improvement in technology that makes production of consumer goods more efficient.

  
• A movement along the curve indicates a change in the combination of goods produced: more capital goods are produced and less consumer goods are produced, or vice versa. The same amount of resources are allocated amongst the two goods differently.
• A shift of the curve indicates a change in the productive potential of the economy: more consumer and capital goods can be produced or less consumer and capital goods can be produced. There has been a change in the number of resources and/or the technology available to the country and so their potential output has changed.