An Application of the Production Possibilities Frontier Model

An Application of the Production Possibilities Frontier Model

Introduction

The aim of this assignment is to discuss an application of the production possibilities frontier model. The production possibilities curve is a graph that represents all the maximum potential production of two goods with a given amount of inputs. In economics, the production possibility frontier (PPF) is the locus of points that shows combinations of goods that we can get so efficient in the economic system considered as a constant and placing of productive resources and technology. The curve shows how the increase in the production of a good, when there are unused resources, necessarily lead to a certain decrease in the production of other goods (Nixon, 2012).

In economics, one of the first concepts seen is called Production Possibilities Frontier, this theory talks about the capabilities of a country, company or individual to produce or create something. The production possibility frontier is used both in microeconomics, especially related to economy of production and in the analysis of productivity, which in macroeconomics, particularly in the context of international economy. The slope of the curve is equal to the opportunity cost, which measures the cost of additional units of a good in terms of lost production units of the other good.

Production Possibilities Frontier graph shows the various alternative combinations of production goods that an economy can achieve if used efficiently available resources. The points on the border assume full employment of these resources.

Discussion and Analysis

This concept is used in the context of the economy and public finances. The Production Possibility Frontier (PPF) is represented as a curve concave to the origin because it is considered that the resources of a country are varied. Some resources will be more effective if they are engaged in the production of consumer goods and others will be more effective if they are used to produce capital goods. If all resources are devoted to a single type of production, the result will be less effective than if production is diversified. That's why the PPF shows that curvature: when production is diverse, that is when they are simultaneously producing consumer goods and capital, resources can be allocated to its most efficient use. Graphically in fact, the production possibility frontier is represented as a curve descending that increases the production of a good and decreases that of the other, also the curve is concave to the origin, i.e. it decreases gradually more and more quickly. This is explained by the existence of diminishing returns due to the existence of rising costs. The increase in the quantity produced of a good thing can in fact be achieved only by sacrificing more and more of the other (Rubinfeld, 2005).

There is various an application of the production possibilities frontier model. The slope of the production possibility frontier is called the marginal rate of transformation which indicates the quantity of a good to be renounced to produce at an additional dose of the other good ...