Production Possibilities Frontier

Individuals are limited in what they can buy because the resources available to them are limited. The societies and countries too are limited in what they can produce with the given amount of resources. Production possibilities curve is a graphical representation of a combination of two goods that a country can produce with a given amount of resources.

PPF

The above figure shows different levels of tons of wheat and tons of steel that a particular country can produce.

If the country chooses to produce 100 tonnes of steel, it has to give up the production of wheat altogether. Similarly if the county chooses to produce 100 tones of wheat, it has to give up production of steel altogether.

A country can choose to produce any combination of the two goods along the production possibilities frontier (A,B,C and D). However, this level of output is possible only if the county employs all of its resources. In real world, this usually does not happen. Any level of output that is inside the PPF (E and G) shows that the economy is not at its full capacity, which means there are unemployed resources.

The points outside the PPF (F) is not possible to achieve with the country’s current capacity.

Click here to read a detailed tutorial about Production Possibility Curves

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