Essay: 'Discuss how PPF theory, choice, scarcity and opportunity cost can be applied to the diagram below

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06/10/09

‘Discuss how PPF theory, choice, scarcity and opportunity cost can be applied to the diagram below’

The Production Possibility Frontier theory is the theory that a combination of goods and services can be produced whilst using all of the available factor resources efficiently. However, as we make more of one good or service, the amount of the other good or service will decrease as there is only a certain amount of available resources, some of which are in scarce supply and therefore this leads to opportunity cost and choice, also. All of these things can be applied to the diagram, which shows how the individual economy of the National Health Service can use its available resources to produce a combination of services; heart operations and all other operations because the PFF is the theory of how an economy produces a combination of goods and services and this is what the diagram is showing, scarcity can be applied because they need to make full efficient use of available resources, many of which are scarce. Finally, choice and opportunity cost can be also applied to the diagram as the economy can only produce so much – its maximum capacity and therefore choices have to be made, in this case either more heart operations or more ‘all other’ operations, and this is closely linked to opportunity cost as choosing to do one operation leads to missing out doing another operation, in this case.

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The PFF can easily be applied to this diagram. This is because the curve being shown is a PFF curve, and at point ‘A’ the NHS are using their resources to do more ‘all other’ operations, and a point ‘B’ the NHS are using their resources to do more ‘heart’ operations. If a point was drawn up that was inside the curve, it would mean that resources are being either unemployed, such as inefficient staff, or using resources inefficiently, such as equipment not being fully used to its potential. If a point was drawn up outside the current curve, ...

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