Production Possibility Frontier Cheat Sheet by NatalieMoore

PPF typically repres­ented by a curve graph

Below the curve = inefficent as resources could be relocated to produce more of both goods

Anything outside the curve cannot be attained with current reources.

On the curve. More of one good can be produced by sacrif­icing another

Production possib­ility changes based on bias of skills and resources

Resources are finite, not unlimited

Opport­unity cost is the highest value altern­ative which must be given up to engage in an activity

Increases in op costs

The Law of Increasing Opport­unity Cost holds that the value of forgone production increases as the quantity of a good increases. The reason for this is resource variab­ility. When all resources are used for one production some are well suited and others are not.

Remaining constant

The oportunity cost does not change with produc­tion, not realistic for whole economy but does happen someti­mes.The economy forgoes the same amount of one good while producing more of the other

Simplifies economies into one or two goods. Makes it simple to graph. More can be worked out with advanced maths.

Assumes the knowledge and inform­ation society has for these products is fixed

The most important economic concepts illust­rated using production possib­ilities analysis are

Full Employment

Producing on the PPC. All resources are engaged in production

Economic Growth

Indicated by an outward shift of the PPC.

The slope of a line is measured by calcul­ating the change in the value measured on the vertical axis divided by the change in the value measured on the horizontal axis.

Slope = Δ Rise / Δ Run