The production possibilities frontier

The concepts of scarcity, choice, opportunity cost and efficiency can be illustrated by the production possibility frontier (PPF). The PPF is defined as the set of maximum combinations of two goods that a nation's economy can produce during a year assuming all the resources at its disposal are fully utilised. The economy represented by the illustration below where it allocates its resources between two categories of goods - capital good represented by a tractor (T) and consumer good represented by car (C).
 
The curve itself depicts the supply side of economy. It represents the
maximum combinations of tractor and car that can be produced, given the country's resources and technology. Each point on the curve is therefore a combination of the two goods that can be obtained when all resources are being used efficiently.
 
Each point is an alternative to other points that could be reached by using the same available resource. The enclosed area represents the economy's capacity to produce. That capacity may be large or small, so that the economy may be wealthy or poor.
A hypothetical production possibility frontier.

The curve has a negative slope downward from right to left, reflecting
scarcity. To get more tractors, more bread must be given up since resources; must be taken from one good in order to provide more of the other. Scarcity does not apply inside the boundary, since from any inner point, more of both goods can be obtained.
 
Once you are on the boundary, each marginal increase in the amount of one good involves a marginal sacrifice or decrease in the amount of the other good. Therefore, the production of each good has an opportunity cost, which is shown by the slope of the curve. More cars can be provided only if some tractors are given up, and vice versa.
 
If the economy must give up four tractors to obtain an additional car, then four units of tractors is the opportunity cost of that additional car.
 
Inside the curve, the opportunity cost of an additional tractor would be zero, since more of both goods could be obtained without sacrifice. The boundary separates the attainable from the unattainable quantities of goods. All points inside the PPF, like are inefficient. If the economy is at point C, it means that some resources are unemployed and/or that resources are being used inefficiently.
 
Moving closer to the boundary could produce more of both goods. The outward shift of the PPF can be brought about by improved technology, growth in raw materials, capital and growth in labour force. This indicates economic growth.
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