2 - 12/2/2007 Ch. 2 Production Possibilities The Production...

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12/2/2007 1 Ch. 2 Production Possibilities The Production Possibilities Frontier s The production possibilities frontier , PPF , is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. s It shows the best an economy can do if it uses all its resources efficiently, given the current technology. Example: Macland s Consider the economy of Macland. It produces only 2 goods: computers and cars. s Macland’s technology is given (it is what it is). s Its resources are fixed. s The following table shows combinations of computers and cars Macland can produce if it uses all its resources, given the current technology:
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12/2/2007 2 COMPUTERS and CARS A 3000 0 B 2200 600 C 2000 700 D 0 1000 Note that this is only a partial table. Let’s graph these combinations: PPF for Macland 3000 2200 2000 Computers Cars 600 700 1000 A B C D 3000 2200 2000 Computers Cars 600 700 1000 Production Possibilities Frontier, PPF A B C D
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12/2/2007 3 3000 2200 2000 Computers Cars K H B C 600 700 1000 Production Possibilities Frontier, PPF A D Unattainable Attainable but inefficient s Points A, B, C and D on the diagram are productively efficient – to produce these combos all resources are used, given the technology. s
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2 - 12/2/2007 Ch. 2 Production Possibilities The Production...

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