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Production possibilities frontier definition economics
Production possibilities frontier definition economics












production possibilities frontier definition economics

This situation would be extreme and even ridiculous. At Point A, all available resources are devoted to healthcare and none are left for education. To understand why the PPF is curved, start by considering Point A at the top left-hand side of the PPF. However, the production possibilities frontier for healthcare and education was drawn as a curved line. The reason for these straight lines was that the slope of the budget constraint was determined by relative prices of the two goods in the consumption budget constraint.

production possibilities frontier definition economics

​The budget constraints presented earlier in this chapter, showing individual choices about what quantities of goods to consume, were all straight lines. We can see that to produce an additional 4 units of healthcare​ (the red arrow on the healthcare axis), 5 units of education are foregone (the red arrow on the education axis). What would the opportunity cost be for the additional healthcare? The opportunity cost would be the healthcare society has to give up. Suppose it considers moving from Point C to Point B. Because the PPF is downward sloping from left to right, the only way society can obtain more healthcare is by giving up some healthcare. Suppose society has chosen to operate at Point C, and it is considering producing more Healthcare at Point B. But it does not have enough resources to produce outside the PPF. Most important, the production possibilities frontier clearly shows the tradeoff between healthcare and education. Society can choose any combination of the two goods on or inside the PPF. In effect, the production possibilities frontier plays the same role for society as the budget constraint plays for Annabel. Alternatively, the society could choose to produce any combination of healthcare and education shown on the production possibilities frontier. If it were to allocate all of its resources to education, it could produce at point F. But it would not have any resources to produce education. If the society were to allocate all of its resources to healthcare, it could produce at point A. ​This situation is illustrated by the production possibilities frontier in, left. In this figure, healthcare is shown on the vertical axis and education is shown on the horizontal axis.














Production possibilities frontier definition economics