PPC / PPF

• The Production possibility frontier shows

  • The maximum possible output of combinations of two goods and services an economy can achieve when all resources are fully and efficiently employed
• Micro PPFs look at two specific goods

  Macro PPFs look at general goods and services
• How would we find the opportunity cost of the PPF?

  By using the gradient
• the shape of a PPF is commonly drawn as an arc that is concave to the origin
• If the law of diminishing returns holds true , then the opportunity cost of expanding output of X measured in terms of lost units of Y is increasing.
• Resources using in producing Y might not be equally suited to producing X
• If the productivity of resources is declining, then the opportunity cost will increase.
• if the marginal opportunity cost is constant, then we draw the PPC as a straight line