Production Possibility Frontiers (Edexcel A Level Economics A)

Revision Note

Steve Vorster

Written by: Steve Vorster

Reviewed by: Jenna Quinn

Production Possibility Frontiers

  • The Production Possibility Frontiers (PPF) model is an economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production efficiently to produce only two goods/services

  • Any two goods/services can be used to demonstrate this model

  • Many PPF diagrams show capital goods and consumer goods on the axes

    • Capital goods are assets that help a firm or nation to produce output (manufacturing). For example, a robotic arm in a car manufacturing company is a capital good

    • Consumer goods are end products and have no future productive use. For example, a watch

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A PPF for an economy demonstrating the use of its resources to produce capital or consumer goods

Diagram explanation

  • The use of PPF to depict the maximum productive potential of an economy

    • The curve demonstrates the possible combinations of the maximum output this economy can produce using all of its resources (factors of production) efficiently

    • At A, its resources are used to produce only consumer goods (300)

    • At B, its resources are used to produce only capital goods (200)

    • Points C and D both represent full (efficient) use of an economy's resources, as these points are on the curve. At C, 150 capital goods and 120 consumer goods are produced

  • The use of PPF to depict opportunity cost using marginal analysis

    • To produce one more unit of capital goods, this economy must give up production of some units of consumer goods (limited resources)

    • If this economy moves from point C (120, 150) to point D (225, 100), the opportunity cost of producing an additional 105 units of consumer goods is 50 capital goods

    • A movement along the PPF occurs when there is any change in the allocation of existing resources within an economy, such as the movement from point C to D

  • The use of PPF to depict efficiency, inefficiency, attainable and unattainable production

    • Producing at any point on the curve represents productive efficiency

    • Any point inside the curve represents inefficiency (point E)

    • Using the current level of resources available, attainable production is any point on or inside the curve and any point outside the curve is unattainable (point F) 

Shifts in the PPF

  • As opposed to a movement along the PPF described above, the entire PPF of an economy can shift inwards or outwards

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Outward shifts of a PPF show economic growth and inward shifts show economic decline

Diagram explanation

  • Economic growth occurs when there is an increase in the productive potential of an economy

    • This is demonstrated by an outward shift of the entire curve. More consumer goods and more capital goods can now be produced using all of the available resources

    • This shift is caused by an increase in the quality or quantity of the available factors of production

      • One example of how the quality of a factor of production can be improved is through the impact of training and education on labour. An educated workforce is a more productive workforce and the production possibilities increase

      • One example of how the quantity of a factor of production can be increased is through a change in migration policies. If an economy allows more foreign workers to work productively in the economy, then the production possibilities increase

  • Economic decline occurs when there is any impact on an economy that reduces the quantity or quality of the available factors of production

    • One example of how this may happen is to consider how the Japanese tsunami of 2011 devastated the production possibilities of Japan for many years. It shifted the PPF inwards and resulted in economic decline

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Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

Jenna Quinn

Author: Jenna Quinn

Expertise: Head of New Subjects

Jenna studied at Cardiff University before training to become a science teacher at the University of Bath specialising in Biology (although she loves teaching all three sciences at GCSE level!). Teaching is her passion, and with 10 years experience teaching across a wide range of specifications – from GCSE and A Level Biology in the UK to IGCSE and IB Biology internationally – she knows what is required to pass those Biology exams.