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Production Possibility Frontier - Coggle Diagram
Production Possibility Frontier
Ceteris Parabus - All other things being equal
Production possibility curve is measuring the tradeoff of getting one outcome over the other. Plotted on a basic xy curve.
The PPF captures concepts of scarcity, choice and tradeoff.
Opportunity can be identified using the PPF
In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives.
Marginal Cost can also be identified
the marginal cost is the change in total production cost that comes from making or producing one additional unit. Needs to be calculated.
Increasing opportunity cost
The slope of the PPF indicates the opportunity cost of producing one good versus the other good
Calculating opportunity cost
PPF vs Budget constraint
PPF has a curved line due to Law of minishing returns - a principle stating that profits or benefits gained from something will represent a proportionally smaller gain as more money or energy is invested in it.
Budget constraint is a straight line
https://www.khanacademy.org/economics-finance-domain/microeconomics/basic-economic-concepts-gen-micro/production-possibilities/a/the-production-possibilities-frontier-and-social-choices-cnx-2
the law of diminishing returns, which holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline.
Efficiency and the PPF
Points that lie on the PPF are productively efficient but we do not know if they are allocatively efficient.
productive efficiency of choosing different combinations of resources to achieve the maximum health benefit for a given cost - PPF
allocative efficiency of achieving the right mixture of healthcare programmes to maximise the health of society
technical efficiency addresses the issue of using given resources to maximum advantage - PPF
allocative efficiency means producers supply the quantity of each product that consumers demand. Basic description - we do need more info than just the PPF. We need to know what society is demanding.
Changes on the PPF
The PPF should change year to year as more resources become available. Outward shift. More of both outcomes being produced.
Increasing, decreasing and constant opportunity cost
Affects the slope of the PPF. Bowed out increasing. Bowed in decreasing. Straight line constant.