Economics 221 Notes continued
Production Possibilities Frontier (PPF)-The locus of the points that separate attainable
and unattainable production combinations.
1)Economy is operating efﬁciency(Full Employment,Full Production)
2)Available supply of resources is ﬁxed in both quantity and quality.
3)Technology is ﬁxed.
4)Economy produces two types of goods.
a)Consumer Goods-Goods that are used by the purchaser and not reprocessed for
b)Capital Goods-Goods such as factory machinery that is used to produce other goods
Regions of the PPF:
On the PPF,more than one good requires a decrease in the production of the other
good. “No Free Lunch”
2.Inside the PPF:Unemployment
Using unemployed resources moves economy closer to the PPF.
Thus, more of one good can be produced with no reduction in the production of the
3.Outside the PPF:Unattainable
Things that cause the PPF to shift:
1)Change in quantity
2)Change in resource quality
3)Improvement in technology
Economic Growth-A rightward shift of the PPF,making attainable production
combinations that had been unattainable.
Types of PPFs:
1)Linear-Constant Opportunity Cost,Assume perfect substitutability of resources can be
shifted with no loss of efﬁciency.
2)Increasing Opportunity Costs PPF-Concave or bowed out
Opportunity Cost-The amount of other products tha