What is Production Possibility Frontier?
What is Production Possibility Frontier?
Introduction
Microeconomics is a branch of economics dealing with the behaviour of small individual players who impact the decision makers while allocation of resources. Microeconomics and macroeconomics are the major branches of economics. Microeconomics covers the relation of supply and demand with the price and output. Production Possibility frontier is also called as production-possibility boundary, production-possibility curve or product transformation curve.
What is PPF?
PPF is a graph or a curve indicating different production possibilities of two commodities with fixed resources or the inputs. The PPF assumes that the inputs are used at a constant rate. Factors such as technology, capital and labour will also affect the position of PPF. PPF generally depicts the maximum production capacity of a given commodity. The commodities may include goods or services. Generally state of technology is considered to be constant. The curve helps to decide between the two choices of goods. This helps in finalising the goods beneficial to the society.The indicators of a PPF include Efficiency, Opportunity Cost and Marginal Rate of transformation.
How is PPF drawn?
Drawing a PPF seems to be difficult until the basics are not clear to a person. To begin with it, on needs to understand that it is a graph representing a country or individual production capacity.A PPF is concave to the point of origin. The reason being the extra output which occurs as a result of allocating more resources to a particular good might fall down. The principle of diminishing returns comes in play during this. Diminishing returns occur when all the factors are not equally suited for the production.Combination of good lying inside the PPF graph represents the inefficient use of resources.Reallocations of scarce resources involve an opportunity cost along with it. PPF is straight line, if the opportunity cost is constant. There may be an outward shift
Introduction
Microeconomics is a branch of economics dealing with the behaviour of small individual players who impact the decision makers while allocation of resources. Microeconomics and macroeconomics are the major branches of economics. Microeconomics covers the relation of supply and demand with the price and output. Production Possibility frontier is also called as production-possibility boundary, production-possibility curve or product transformation curve.
What is PPF?
PPF is a graph or a curve indicating different production possibilities of two commodities with fixed resources or the inputs. The PPF assumes that the inputs are used at a constant rate. Factors such as technology, capital and labour will also affect the position of PPF. PPF generally depicts the maximum production capacity of a given commodity. The commodities may include goods or services. Generally state of technology is considered to be constant. The curve helps to decide between the two choices of goods. This helps in finalising the goods beneficial to the society.The indicators of a PPF include Efficiency, Opportunity Cost and Marginal Rate of transformation.
How is PPF drawn?
Drawing a PPF seems to be difficult until the basics are not clear to a person. To begin with it, on needs to understand that it is a graph representing a country or individual production capacity.A PPF is concave to the point of origin. The reason being the extra output which occurs as a result of allocating more resources to a particular good might fall down. The principle of diminishing returns comes in play during this. Diminishing returns occur when all the factors are not equally suited for the production.Combination of good lying inside the PPF graph represents the inefficient use of resources.Reallocations of scarce resources involve an opportunity cost along with it. PPF is straight line, if the opportunity cost is constant. There may be an outward shift