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Production Possibilities Frontier

Production Possibilities Frontier

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Production Possibilities Frontier

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  1. Production Possibilities Frontier Consumer Goods Production Possibilities Frontier (PPF) shows all possible combinations of two products (Consumer Goods and Capital Goods) that a country can produce with available technology and full employment of all resources. PPF 0 Capital Goods

  2. Production Possibilities

  3. A Production Possibility Frontier Suppose that the production possibility frontier can be represented by To find the slope, we can solve for Y If we differentiate

  4. A Production Possibility Frontier When X=5, Y=13.2, the slope= -2(5)/13.2= -.76 When X=10, Y=5, the slope= -2(10)/5= -4 The slope rises as X rises.

  5. Indifference Curves An Indifference Curve represents all combinations of market baskets that provide a consumer with the same level of satisfaction.

  6. Characteristics of Indifference Curves • Indifference curves are continuous and every- where dense; • Indifference curves slope downward to the right; and • Indifference curves do not intersect; C U2 U1 K 0

  7. General Equilibrium C E CE U PPF K O KE