What are the main ideas that are explained by the Production Possibilities Frontier Model?

Expert Solution

The Production Possibility Frontier represents different combinations of two goods that can be produced with the given level of resources and technology. The PPF represents the concept of tradeoff. In order to increase the production of one good , one has to reduce the production of the other good because the resources available in the market will remain fixed. The shape of the PPF can be increasing or decreasing or constant.

The points inside the PPF curve represent the underutilization of resources, points on the PPF curve represents the efficient utilization of resources whereas any point outside the PPF curve represents the unattainable points. The points on the PPF curve refers to the Pareto efficient point.

The PPF curve can pivot or shift depending upon the expansion or contraction of resources.

When the resources available in the market increase, the PPF curve shifts to the right whereas when resources available in the market decreases, the PPF curve shifts to the left.

Rahul Sunny answered 2 years ago

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