Question

Economic models are used to reflect make assumptions about both consumer and producer behavior and in the case of the Production Possibilities Frontier (PPF) to show the concepts of opportunity cost, trade-offs, and scarcity. Please reflect on and explain a "real-world" application of the PPF for your scarce resources associated with a scenario where you could spend your time (labor input), equipment (physical capital), and natural resources to allocate resources between two production options. For example, on page 32 of our textbook and reflected in the graphic below, there is reference to allocating resources to either healthcare or education. Healthcare A PPF D Education

Answer 1

Total amount of resources available to an economy is scarce and constant. Assuming the economy can produce two goods - Healthcare and Education, the economy would have to allocate its scarce resources between these two goods. However, using scarce resources to produce more of healthcare means less education is provided. There is a trade-off between the two goods and the opportunity cost of producing more healthcare is reduced education. This is shown by the point B where more healthcare is produced and less education is produced. The opposite situation is shown in point D> At D, more education is produced but at the expense of healthcare. C shows a more balanced point where both the goods are produced by a sufficient amount. Any point in the inward region of ppf would reflect inefficiency of resources, and thus it is not an efficient option.