PPF/PPC.

• Production possibility frontiers (PPFs) or production possibility curves

  Very useful tools to illustrate the ideas of scarcity and choice in economics
• PPFs/PPCs

  • Show the maximum possible production of two goods or services that can be produced with a given level of factors of production
  • Show the various combinations of two goods and services that can be produced with a given level of factors of production
• Macro PPF

  • Shows the maximum possible production of all goods and services that can be produced with the level of factors of production in the economy
  • Shows the various combinations of all goods and services that can be produced with given factors of production in the economy
• Opportunity cost


  The cost of an alternative that must be given up to pursue a certain action
• Concave PPF


  Illustrates the law of increasing opportunity cost
• As a firm moves further along a concave PPF, the opportunity cost of producing an additional unit of one good increases
• Productive efficiency

  Using all factors of production to their maximum level to get maximum production
• Allocative efficiency

  Producing the combination of goods and services that best satisfies consumer demand
• Pareto efficiency

  A situation where nobody can be made better off without making someone else worse off
• Increasing production on a PPF

  1. Use factors of production better

  2. Reallocate factors of production

  3. Shift the PPF curve by increasing quantity and/or quality of factors of production
• Shift in PPF favoring one good


  Caused by an improvement in quantity and/or quality of factors of production specialized in producing that good