What is

Economics:
PPF
DIAGRAM
11 ATAR Economics
 Production
possibility frontier
✘ This model shows all the combinations of goods
and services that can be produced by an
economy based on the available resources and
level of technology.
✘ Assumptions:
✗ Resources are fixed (quality and quantity)
✗ Technology is fixed
✗ The economy produces only two goods

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 EXAMPLE
✘ Say an economy only produces pizza and cars

Pizzas (millions) Cars

0 5000
1 4000
2 3000
3 2000
4 1000
5 0

We can convert this information into a graph or

production possibility curve
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 Cars
EXAMPLE
5000

4000

3000

2000

1000

Pizza (millions)
1 2 3 4 5
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 EXAMPLE
✘ The diagram to the right is a simplified
PPF

✘ We can produce anywhere under the

curve but the most efficient place to
produce is anywhere along the curve

✘ The curve illustrates scarcity, tradeoffs

and opportunity costs

✘ The straight line means that the

opportunity cost between the two goods
is constant.
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 EXAMPLE
• In reality, the PPF is a curve because the Cars
opportunity cost of producing two goods is rarely 5000
the same
4000

• In other words, a straight PPF would mean that 3000

the economy’s resources are equally suited to
producing pizzas as they are suited to producing
2000
cars. This is not the case and so the PPF will be
curved.
1000

• The opportunity cost of increasing the production 1 2 3 4 5

of one good in the economy with scarce resources Pizza
(millions)
increases.

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 improvement in
technology
Cars
5000
✘ If, for example, there was an
improvement in car manufacturing 4000
technology, the PPF would shift
3000
outwards, but only for cars because the
increase in resources was related to the
2000
car industry
1000

1 2 3 4 5
Pizza
(millions)

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 EXAMPLE – Increase in
Resources
Cars
5000
✘ If there is an increase in the quality
and/or quantity of resources in the 4000
economy then the whole curve would
3000
shift outwards, reflecting the increase
capacity to produce cars and pizzas.
2000

✘ In modern day economies, the PPF 1000

gradually increases over time as the

stock of resources grows. 1 2 3 4 5
Pizza
(millions)

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 Task
Complete the PPF worksheet on page
21 of your textbook.
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