Sunday, 12 April 2020 / Page 1 of 3
Production Possibility Frontier
Definition: Also known as the transformation curve, is a graphical representation of all the possible combinations of goods that can be produced when all resources are fully and efficiently employed.
The table below shows an economy which can either produce Military or
Consumer goods. The various possibilities are shown by this a
Production Possibility Schedule.
10,000
8,000
6,000
4,000
2,000
0
0
4,000
8,000
12,000
16,000
20,000
The diagram below maps these figures to give us a relationship between the choices and shows a simplified picture of reality. This diagram (and often in economics) is stripped of all details that are unnecessary to illustrate the argument being made. This presents us with dangers. We run the risk of oversimplifying and producing diagrams which misrepresent the true picture.
The diagram represents an imaginary economy which devotes all its resources to producing just two types of good.
If the economy chooses to produce just military good then
10,000 units can be produced. If however, they choose to produce only consumer goods then 20,000 units can be produced.
Some possible combinations of choices are shown in the table and all choices are represented by the diagram. In your own words using class discussion, write answers to these definitions;
 Point a shows a position where…..
 Point b shows a position where….
 At point d the economy is choosing to just produce….
 Point X is…
 Can we achieve point Y?
 What does the shaded area show in relation to point X?
 Is there as constant trade off between the goods?
Mr Chris Freeman B.Sc.Econ PGCE
Head of Economics & Business Studies, St Christopher’s School, Kingdom of Bahrain

Sunday, 12 April 2020 / Page 2 of 3
We have established that if the economy decided to substitute production from one good to another that they would experience different opportunity costs. We call this increasing opportunity costs. This means that as the country produced more of one good it has to sacrifice ever increasing amounts of the other. This is because different factors of production have different properties. If a country concentrates more on the production of one good, it has to start using resources that are less and less suitable.
Definition
Increasing opportunity costs of production – When additional production costs of one good involves ever increasing sacrifices of another.
This new table shows another economy where this is true and shows the trade off between producing just food and producing only cars.
Food
[units]
700
660
600
500
300
0
Cars
[units]
0
100
200
300
400
500
Maximum possible combinations of food and cars that can be produced in a given time period.
 Complete the diagram using the figures given in the table
(to scale).
Mr Chris Freeman B.Sc.Econ PGCE
Head of Economics & Business Studies, St Christopher’s School, Kingdom of Bahrain

Sunday, 12 April 2020 / Page 3 of 3
In our example the production of more and more food will give an increasing marginal cost; the more food we choose to produce the more cars we have to give up. It is because of these increasing opportunity costs that the PPF is bowed outwards.
1.
Assume your economy is currently producing at point A where
100 units of cars and 660 units of food are produced. What is the opportunity cost of producing 100 more units of cars
[point B]?
2.
Now assume that your economy is at B and considering moving to point C where a further 100 units of cards are produced, what is the opportunity cost of this move?
3.
Do you notice a trend? Explain.
4.
Under what circumstances would the production possibility frontier be; a.
a straight line b.
bowed in towards the origin? c.
are these ever likely?
We can show changes to the economy by changing the shape and position of the PPF. Firstly we need to illustrate these changes by using some more diagrams. Make sure you have a diagram and an explanation for the following cases;
 Economic Growth
 Increased productivity for ‘good A’ but not ‘good B’.
 Increased productivity for ‘good B’ but not ‘good A’.
 The choice between ‘consumer’ and ‘capital’ goods illustrating capital consumption.
 Capital consumption and the developing world – a dilemma?
Questions:
1.
When making choices between producing more or less, how do we or economies decide what level to produce at? Consider marginal cost.
2.
How can a country already producing at full capacity [on the PPF] produce more of both goods?
Mr Chris Freeman B.Sc.Econ PGCE
Head of Economics & Business Studies, St Christopher’s School, Kingdom of Bahrain