Unit #1: Foundations of Economics        Ch. #4: Production Possibilities Curve / Frontier 
            
           The PPC or PPF shows production with limited resources and its impacts. 
                 Like all models there are several assumptions:  
                  1.  It is a simple model of a society’s ability to produce – the PPC or PPF uses two resources to 
                      represent many resources. 
                  2.  Assume the means of production, the resources are fixed.  In addition, the state of 
                      technology is fixed as well.   
           A table (shown below) is plotted into a graph to create the PPC or PPF. 
                                            Wheat                          Cotton 
            A                               200                            300 
            B                               160                            400 
            C                               80                             480 
            
           The points (A,B, and C) are graphed to give the PPC or PPF: 
                                                        
                 The curve shows several significant concepts: 
                  1.  Tradeoffs: the choice to produce more cotton results in less wheat 
                  2.  Opportunity costs: the choice to produce more cotton from point A to point B (increase 
                      production from 300 to 400 units of cotton) results in an opportunity cost of 40 units of 
                      wheat (production decreases from 200 to 160). 
                  3.  Efficiency:  
                         a.  Productive efficiency: a situation in which the economy could not produce any 
                            more of one good without sacrificing production of another good.  
                                i.  Use all resources for lowest cost  
                                ii.  Any point on the inside of the curve is productively inefficient – if the curve 
                                   shows the most production, then production inside the curve implies more 
                                   can be produced.  Therefore, not all of the resources are being used. 
                         b.  Allocative efficiency is a state of the economy in which production represents 
                            consumer preferences. 
                                i.  Production is valued by society 
                                ii.  The curve shows production points that could be allocatively efficient.  It 
                                   only shows production, so we are unable to know for certain which products 
                                   are allocatively efficient. 
           Source: http://beta.tutor2u.net/economics/reference/production-possibility-frontier