In: Economics
PPF is one of the basic tools of microeconomic analysis.
PPF limits the extent to which an economy can produce using
existing resource
PPF captures concepts of selection, scarcity,opportunity cost etc., a graph showing the various combinations of production of two commodities that can be produced using available resources and technology.
Simply put, PPF represents the different quantities of two commodities that can be produced using available resources (money, raw materials, technology, time, etc.). So on both axes you will have two products of different sizes, say mobile and computer. such as If you change the sources of cell phone producing, you can build more computers, and vice versa.
conomists use PPFs to illustrate the tradeoffs resulting from scarcity (shortages).
1.PPF mainly illustrates the concept of scarcity: -
illustrates scarcity by dividing the production space into
achievable and inaccessible levels of production. However, not PPF
curve illustrates the scarity. For this PPF curve, the production
of more of the two goods is obtained by going up along the
frontier. The scarcity of resources poses the problem of options.
Due to the scarcity problem, the allocation of resources to society
is limited. To efficiently use the given resources, it is
imperative to analyze the demand to understand what goods need to
be produced and in what quantity to avoid wasting the allocated
resources.
2.PPF mainly,illustrates the concept of opportunity cost:
-
Opportunity cost can be illustrated using production possibilities
frontiers that provide a simple but powerful tool for illustrating
the effects of an economic choice. A PPF shows all possible
combinations of two products available at any given time.
It hangs from left to right, as society has to sacrifice a certain
amount of one good to increase the production of another good while
fixing resources.