Dr. Gary Stone, Winthrop University

Production Possibilities Frontier (PPF)

A country’s PPF shows the different combinations of goods and services the country can produce in one year if it uses its resources fully and efficiently.

The PPF illustrates several important economic concepts:

scarcity – If the country did not have a scarcity of resources, there would be no limit on what it could produce.

choice – Because the country has a limited amount of resources, it must decide what combination of goods and services it wishes to produce.

opportunity cost – In choosing one particular combination of goods and services to produce, society is giving up other possible combinations. The highest valued alternative combination represents the opportunity cost of choosing a given combination of goods and services.

A country’s PPF is bowed outward (concave to the origin) because of the “law of increasing opportunity cost.” The law of increasing opportunity cost is based on the fact that some resources are better suited to produce one good than another good.