Production possibility frontier
Production possibility frontier
In economics, a production possibilities frontier (PPF) or “transformation curve” is a graph that shows the different quantities of two goods that an economy (or agent) could efficiently produce with limited productive resources. Points along the curve describe the trade-off between the two goods, that is, the opportunity cost. Opportunity cost here measures how much an additional unit of one good costs in units forgone of the other good. The curve illustrates that increasing production of one good reduces maximum production of the other good as resources are transferred away from the other good.
When the production of both goods (X and Y) increased, the PPF will shift out (parallel shift). This is a way to represent economic growth graphically.
What causes the PPF shift?
1. Technological advance
2. More resource
3. Better resource
4. Government policies
5. Trade with other countries
.etc
Three basic assumptions underlie the production possibilities frontier model"
1. Fixed resources
2.Fully employed resources.
3.Technology unchanged.
基本假设
（1）商品市场和生产要素市场完全竞争； （2）商品的生产技术条件既定且规模收益不变； （3）生产要素的总供给固定不变； （4）生产要素可在各部门间自由流动； （5）生产要素都充分利用； （6）经济活动中不存在外在性（externality）。