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production possibility frontier

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A locus of points showing the maximum outputs of goods and services possible with the available resources. For an economy with two goods the PPF can be displayed in a two-dimensional diagram. Let the output of one good be measured on the horizontal axis and the output of the other good on the vertical axis. The PPF then usually slopes downwards: its slope shows the opportunity cost of each good in terms of the other. Limited supplies of specific factors of production and differences in factor proportions between industries tend to make the PPF concave to the origin. Increasing returns in one or both industries tend to make it convex to the origin. A PPF can be defined for a firm, an industry, a country, or the world as a whole. See also production possibility set; production set.

Production Possibility Frontier

Subjects: Social sciencesEconomics

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