OPPORTUNITY COST AND
PRODUCTION POSSIBILITY
FRONTIER (PPF)
TO P I C 1 : I N T R O D U C T I O N TO E C O N O M I C S
THE OPPORTUNITY COST OF
COVID?
• What and who has been impacted as a result of diverted funds
and resources that could have been used, had it not been for
COVID?
• What costs have emerged as a result of dealing with the global
pandemic?
THE OPPORTUNITY COST
OF COVID-19
OPPORTUNITY COST
AND PPF
• The cost of alternative uses in economics is known as opportunity
cost.
• Opportunity cost may be expressed in terms of: money, time and items
forgone.
• Opportunity cost is best illustrated through the PPF or curve.
THE PPF MODEL
• Assumptions underlying the PPF model:
- Only 2 goods are being produced.
- All resources are fully employed and fixed.
- Resources are fixed but can be switched from one type
of production.
- Technology remains constant
PPF CURVE
MOVEMENTS ALONG
THE PPF
UNATTAINABLE POINTS OF
PRODUCTION
SHIFT OUTWARD PPF
COMPARATIVE
ADVANTAGE
• An economy may be able to produce for itself all of the goods and
services it needs to function using the PPF as a guide. However, this
may actually lead to an overall inefficient allocation of resources and
hinder future growth when the benefits of trade are considered.
• Through specialisation, a country can concentrate on the
production of just a few things that it can do best, rather than trying
to do everything on its own.
• Comparative advantage is based on the opportunity cost of producing
a good. If a Country can produce a particular good at a lower
opportunity cost than any other country then it is said to have a
comparative advantage.
• What areas does Australia hold a comparative advantage in?
• In other words, what goods or services can Australia produce better
than another country using the same amount of resources?