Production-Possibility Frontier (PPF)

(noun)

A graph that shows the various combinations of amounts of two commodities that could be produced using the same fixed total amount of each of the factors of production.

Related Terms

Examples of Production-Possibility Frontier (PPF) in the following topics:

  • Production Possibility Frontier

    • A production-possibility frontier (PPF) graphs the combinations for the production of two commodities with which the same amounts are used.
    • Within a market system, economists use the production possibility frontier (PPF) to graph the combinations of the amounts of two commodities that can be produced using the same amount of each factor of production.
    • PPF is used to define production efficiency.
    • PPF graphs help economists study the current state of production as well as possible production scenarios.
    • Explain the benefits of trade and exchange using the production possibilities frontier (PPF)

  • Understanding Production Possibilities

    • The production possibility frontier shows the combinations of output that could be produced using available inputs.
    • In economics, the production possibility frontier (PPF) is a graph that shows the combinations of two commodities that could be produced using the same total amount of the factors of production.
    • In this instance, the production possibilities frontier is also the consumption possibilities frontier.
    • Trade enables consumption outside the production possibility frontier.
    • Explain the benefits of trade and exchange using the production possibilities frontier (PPF)

  • The Circular Flow Model

    • The circular flow of income can also be analyzed using the production possibility frontier (PPF).
    • The graph shows the maximum possible production level of one commodity for any production level of the other, based on the state of technology.
    • The PPF defines production efficiency.
    • The graph illustrates a typical production possibilities frontier curve.
    • State the function of the circular flow diagram and the production possibilities frontier

  • Productive Efficiency

    • Productive efficiency occurs when production of a good is achieved at the lowest resource cost possible, given the level of production of other goods.
    • The concept is illustrated on a production possibility frontier (PPF) where all points on the curve are points of maximum productive efficiency (i.e., no more output can be achieved from the given inputs).
    • By improving these processes, an economy or business can extend its production possibility frontier outward, so that efficient production yields more output.
    • This chart shows production possibilities for production of guns and butter.
    • Point X is only possible if the means of production improve.

  • Impacts of Technological Change on Productivity

    • Productivity growth is bound by what is called the production-possibility frontier (PPF), which essentially stipulates a series of maximum amounts of two commodities that can be generated using a fixed amount the relevant factors of production .
    • In the context of a given PPF, only an increase in overall supply of inputs or a technological advancement will allow for the PPF to shift out and allow for an increase in potential outputs of both goods simultaneously (represented by point 'X' in the figure).
    • This is a critical component in understanding the role of technology in productivity, as it is a primary influence on increasing the prospective production possibilities.
    • This graph illustrates the varying theoretical takeaways from a PPF chart.
    • X is beyond the scope of the PPF graph, and thus requires a technological improvement or increase in supply.

  • The Importance of Productivity

    • The final important consideration in assessing productivity potential is the production-possibility frontier (PPF), which essentially outlines the maximum production quantity of two goods (in the scope of our current technological capacity and supply).
    • This demonstrates the confinement of productivity, and thus is well captured in the Leontief production function.
    • The illustration in the following figure demonstrates an increase in PPF, thus affecting the production function.
    • In this graph, the prospective production-possibility frontier shifts to the right, implying a higher supply or improved technological production ability of the two goods being discussed (in this case guns and butter).
    • Use the production function to determine how different variables affect output and productivity

  • Changes in Technology Over Time

    • Factors of production typically include land, labor, capital, and natural resources.
    • Technological change is a term used to describe any change in the set of feasible production possibilities.
    • For the economy as a whole, an improvement in technology shifts the production possibilities frontier outward .
    • Supply of these goods increased, and the production possibilities curve for the entire economy shifted outwards.
    • An increase in technology that allows for greater output based upon the same inputs can be described as an outward shift of the PPF, as demonstrated in this figure.

  • Marginal Analysis

    • In production, the manager must understand that a change in an input such as labour "causes" a change in output.
    • This was demonstrated in a Production Possibilities model.
    • The slope of the PPF is called the "Marginal Rate of Transformation" (MRT).
    • The PPF function shows all combinations of Yawls (Y) and Xebecs (X) that can be produced given inputs and technology.
    • When the change in X approaches 0, the change in Y is shown by the line FF' which is tangent to the PPF at point B.

  • Economic Growth as a Measuring Stick

    • Economic growth is measured as the increase in real gross domestic product (GDP) in the long-run, through higher resources or productivity.
    • Economic growth can be defined as the increase in real gross domestic product (GDP) in the long-run, or as increased productivity or via an increase in the natural resources (inputs) that create output.
    • Economic growth could also be described as an outward shift in the production-possibility frontier, allowing for the production of a higher quantity of goods (see ).
    • Measuring economic growth is reasonably straight-forward, primarily focusing on either increases in productivity or increases in the available production inputs in a given system.
    • This outward shift in the Production-Possibility frontier is indicative of economic growth within the economy it represents.

  • Technological Change

    • In economics, technological change is a term used to describe the change in a set of feasible production possibilities.
    • Technological change is a term used to describe the change in a set of feasible production possibilities.
    • The field of economics is constantly evolving as is the production of goods and services.
    • Advances in technology creates an increased level of output with the same inputs, which improves productivity.
    • Technological change causes the production possibility frontier to shift outward and initiate economic growth.