Question

What is a production possibilities frontier? Why is it typically drawn as a curve rather than a straight line? How can a frontier explain the concept of productive efficiency? Provide examples and explain your answer.

Answer 1

Production possibilities frontier shows all possible combinations of two goods that can be produced with the help of full and efficient utilization of all resources.

Since resources are not equally efficient in the production of all goods, cost of production increases if we move from one good to other good. So, in order to increase the production of one good, more and more resources from other good has to be sacrificed. This is why it is typically drawn as a curve rather than a straight line. A straight line would have implied a fixed proportion of resources to be sacrificed of one good for the production of other good.

If any point is inside the PPF, it indicates under-utilization of resources, and if any point is on the PPF, it indicates full and efficient utilization of resources. Any point outside the PPF shows growth of resources (e.g. increase in population)

For example, Assuming an economy is producing only two goods - mobile phones and laptops, and economy is utilizing all the resources efficiently. In such a case, if the economy wants to increase its production of mobile phones, it has to reduce the production of laptops and utilize those resources which are saved from laptop production to the mobile phone production. However, even though we have saved resources by reducing laptop production, we'll need more and more resources of laptop for each unit of mobile production.