Topic 5 · intro
Production Possibilities Frontier
Resources are limited, so you pay for one thing by giving up another — that is what the production possibilities frontier shows.
What it is
The PPF (Production Possibilities Frontier) is every combination of two goods an economy can produce when resources are fully used.
Opportunity cost
To make more of one good you have to give up some of the other. What you give up is the opportunity cost.
Law of increasing costs
The curve is bowed out: the more of one good, the more (in units of the other) each extra unit costs — resources are not equally suited to everything.
🎛 Production in motion
The slider sets how much of good A to make — how much is left for B shows on the curve.
Good A—
Good B—
More A → less B (opportunity cost)
🎯 Now possible
- explain opportunity cost
- read points on/inside/beyond the frontier
- explain the law of increasing costs
Cheat sheet
A point ON the curve — efficient
A point INSIDE — resources underused
A point BEYOND — unattainable for now
More of one = less of the other (opportunity cost)
The curve is bowed → increasing costs
Practice on this topic
Where to read more: Мэнкью — гл. 2–3Макконнелл–Брю — гл. 1–2