A) The use of production possibility frontiers

The production possibility frontier helps economists analyse trade-offs. Points on the PPF show the maximum combinations of two goods that can be produced using the economy’s current factors of production.

For example, if the economy is producing 160 capital goods and 135 consumer goods but wants to increase the amount of capital goods produced, resources will need to be moved away from the production of consumer goods.

If capital goods increase from 160 to 190, consumer goods may fall from 135 to 90. The consumer goods that are given up are the opportunity cost of producing the additional capital goods.

B) Attainable, unattainable and efficient points

A point inside the PPF is attainable because it is within the current productive potential of the economy. However, an economy operating inside the PPF is inefficient because not all of its available resources are being fully used.

Points on the PPF show productive efficiency, as the economy is producing the maximum possible output from its current resources.

A point outside the PPF is currently unattainable using the economy’s existing factors of production.

C) Movements along and shifts in production possibility frontiers

A movement along the PPF shows a change in resource allocation. For example, factors of production may be moved from producing consumer goods towards producing capital goods.

A shift of the whole PPF is different because it shows a change in the productive potential of the economy. An outward shift means that the economy can produce more than before, while an inward shift means that productive potential has fallen.

What the full guide adds

For this topic, the full AS guide also covers:

• Fuller numerical opportunity cost examples, showing how the trade-off between capital and consumer goods changes at different points on the PPF.
• Increasing opportunity cost and why the opportunity cost of producing additional units can rise as resources are reallocated.
• Outward and inward shifts of the PPF, including the link between changes in productive potential and economic growth.
• The distinction between capital goods and consumer goods and how allocating more resources towards capital goods can affect future economic growth.