Answer to Question #213752 in Economics for Milenjit Khera

Question

3. (a) Define “production possibility frontier (PPF)”.                            (3 marks)

       

            (b) Using production possibilities frontier (PPF) diagrams, distinguish between ‘bowed outward PPF’ and ‘straight line PPF’.               (10 marks)

4.(a) Using a production possibilities frontier (PPF), explain the following concepts:

i) Opportunity cost; (4 marks)

ii) Productive efficiency; (4 marks)

iii) Economic growth. (4 marks)

(b) Using a production possibilities frontier (PPF), explain the concept of ‘attainable’ and ‘unattainable’. (7 marks)

Answer 1

3. (a) production possibility frontier (PPF) is a curve that illustrates the variations in the amounts that can be produced of two products if both depend upon the same finite resource for their manufacture.

(b) When the PPC is a straight line, opportunity costs are the same no matter how far you move along the curve. When the PPC is concave (bowed out), opportunity costs increase as you move along the curve. 

4.(a)

i) In the context of a PPF, opportunity cost is directly related to the shape of the curve (see below). If the shape of the PPF curve is a straight-line, the opportunity cost is constant as production of different goods is changing. But, opportunity cost usually will vary depending on the start and end points.

ii) Any time a society is producing a combination of goods that falls along the PPF, it is achieving productive efficiency. 

iii) Economic growth occurs when an economy's production at the full employment level increases. Increase in the production at the full employment level is shown by an outward shift of production possibility frontier (PPF).

(b) Points outside the PPF are unattainable. We can produce at any point inside the PPF or on the frontier, so they are attainable.