Production Possibility Frontier (PPF)

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ECONOMICS ESSAY ON PRODUCTION POSSIBILITY FRONTIER

The starting point in economics is to measure what we can produce. Everyone’s endless desires cannot be fulfilled due to limited resources, so there is a limit to what our economy can actually produce. This can be analyzed by what is called the PPF or Production Possibility Frontier.

Where Do We Start?

We generally begin economics by discussing scarcity. Everything in economics boils down to the constant scarcity that exists. In an economy, there are always limited resources as opposed to the unlimited human desires. In other words, at every point of time in an economy, there is scarcity. Thus it is very important the measure what our economy can produce at the end of the day. What an economy is capable of measuring is shown on a PPF or Production Possibility Frontier curve.

What is PPF?

There are a thousand ways of defining this simple three letter term, but it is necessary to understand how these complicated definitions are derived. If taken literally, the word PPF arises from three words:

                             -  Production- output of goods and services by adding utility to it

                        -   Possibility- the maximum attainable amount

                    -  Frontier- border or boundary

If combined, we can attain the following definition of PPF: A curve showing the boundary of what can be produced in an economy when the factors of production are used to their fullest potential.

Factors of Production: another intimidating term?

Factors of production in simple terms refer to the four main resources used while producing goods. They include

1) Land

2) Labor

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3) Capital

4) Enterprise

PPF and Opportunity Cost

Opportunity cost is the value of what is foregone to have something else. Due to limited resources, if more of a certain product needs to be produced, less of another must be produced. The opportunity of enjoying one product is lost when less of that product and more of another begins to be produced. For example, if I have $20 to spend at the mall, I can either but a dress costing $20 or a Noddy toy costing the same. I cannot buy both. Let’s say I buy the Noddy toy. ...

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