Q&A: How the PFF might be used in assessing a country’s economic performance

A production possibility frontier (PPF) is a boundary which shows the combinations of two or more goods and services that can be produced whilst using all available factor resources efficiently.

Combinations of output of goods and services lying inside the PPF happen when there are unemployed resources or when the economy uses resources inefficiently. We could increase total output by moving towards the PPF. Students might want to use the PPF when discussing the economic cost of a recession where unemployment rises to high levels.

To reach output combinations that lie beyond the current PPF, Aa country would require an increase in factor resources, an increase in the productivity or an improvement in technology. International trade between countries also allows nations to consume beyond their domestic PPF.

Producing more of both goods would represent an improvement in economic welfare providing that the products are giving consumers a positive satisfaction and therefore an improvement in what is called allocative efficiency

Shifts in the PPF

The PPF will shift when:

1/ There are improvements in productivity and efficiency perhaps because of the introduction of new technology or advances in the techniques of production
2/ More factor resources are exploited perhaps due to an increase in the size of the workforce or a rise in the amount of capital equipment available for businesses