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Unformatted text preview: ies Frontier All resources used to produce macs B
1/7/2009 Class 1 Macs
10 The Production Possibilities Frontier (PPF) Definition: The PPF shows the maximum quantity of one good that can be produced (e.g. iPhones), for any given quantity of the other good produced (macs). 1/7/2009 Class 1 11 iPhones Production Possibilities Frontier qp0 qp1 qm0
1/7/2009 Class 1 qm1 Macs
12 Observation 1 The PPF must be negatively sloped
Suppose this point is on the PPF iPhones A B Production Possibilities Frontier Macs Observation 2 Points inside the PPF are inefficient If a point lies inside the PPF, either Productive resources are unused, so those unused resources could be used to increase output of at least one good; or Productive resources could be reallocated to increase output of one good without reducing output of the other Class 1
Class 1 1/7/2009 14 iPhones Points B, C and D are able to satisfy more wants than point A, and can do so without making anyone worse off B D C A Production Possibilities Frontier Macs
1/7/2009 Class 1 15 Observation 3 All efficient allocations are represented by points on the PPF We will say that all the points on the PPF are productively efficient: i.e. it is impossible to increase the output of one good without decreasing the output of the other 1/7/2009 Class 1 16 A only iPhones produced iPhones...
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