Production Possibilities Curve

Production Possibilities Curve

Question 1

In economics , the production possibility frontier (production possibilities frontier, PPF) or curved transformation (transformation curve) is the locus of points showing the combinations of goods that you can get so efficient in the economic system considered as a constant and placing of productive resources and technology. From a microeconomic point of view, “the production possibility frontier represents the point at which an economy is most efficiently producing its goods and services and, therefore, allocating its resources in the best way possible.

Therefore, we can firmly state that a nation's production possibility frontier can shift both in the inward and outward directions, depending on a situation going on in a specific country. The possibilities curve illustrates the limits that an economy has, which drives us to a conclusion that in order to achieve efficiency, the proportion of produced goods and services must be regulated and managed correctly. Alternatively, the economy is going to shrink, as a result of a false allocation of its most vital resources and/or its ultimate production capabilities. Moreover, the decline of the economy, which consequently leads to the inward movement of the production possibility curve, can be caused by a shortage of the resources and inefficiency of implementation of high technologies in the production process (Arnold, 2011).

A production possibility frontier might move outwards due to various factors such as the reduction in trade barriers, increase in the supply of resources, increases in the labor supply, discovery of new oil reserves increase the supply of natural resources, improvement of the technology, the discovery of more efficient means of production that may shift the production possibility frontier outwards.

Question 2

Combinations of output that are inside the production possibilities frontier represent inefficient production, since an economy could produce more of both goods (i.e. move up and to the right on the graph) by reorganizing resources. On the other hand, combinations of output that lie outside the production possibilities frontier represent infeasible points, since the economy doesn't have enough resources to produce those combinations of goods. Therefore, the production possibilities frontier represents all points where an economy is using all of its resources efficiently.

It is aswell accessible for a accustomed adversity to hit which destroys some of the inputs in the assembly process. Imagine if a blow took out a factory, again we would see lower assembly in the abridgement as a result. This would be shown as follows, in the PPF graph:

The Production Possibilities Frontier is concave and decreasing. This form is due to two reasons:

Decreasing: Since to produce a greater quantity of a commodity, we need to give up some of another good.

Concave: The opportunity cost is increasing.

The Production Possibility Frontier can be moved, i.e. that are unattainable points can reach. This shift may be due to technological improvements, to a capital increase, an increase of workers or the discovery of new natural resources. If all resources were allocated to one type of production, the result would be less effective than if production is diversified so that the PPF has curvature: when ...