why is the ppf downward sloping

In effect, the production possibilities frontier plays the same role for society as the budget constraint plays for Charlie. https://openstax.org/books/principles-economics-3e/pages/1-introduction, https://openstax.org/books/principles-economics-3e/pages/2-2-the-production-possibilities-frontier-and-social-choices, Creative Commons Attribution 4.0 International License, Interpret production possibilities frontier graphs, Contrast a budget constraint and a production possibilities frontier, Explain the relationship between a production possibilities frontier and the law of diminishing returns, Contrast productive efficiency and allocative efficiency. In this way, the law of diminishing returns produces the outward-bending shape of the production possibilities frontier. The increase in resources devoted to security meant fewer other goods and services could be produced. The production possibilities frontier (PPF) is curved because the cost of production is not constant. The following. It has an advantage not because it can produce more snowboards than the other plants (all the plants in this example are capable of producing up to 100 snowboards per month) but because it is the least productive plant for making skis. The Production Possibilities Frontier and Social Choices - OpenEd CUNY In this lesson, let's assume we can produce either baseballs or puzzles. For government, this process often involves trying to identify where additional spending could do the most good and where reductions in spending would do the least harm. Plant S has a comparative advantage in producing radios, so, if the firm goes from producing 150 calculators and no radios to producing 100 radios, it will produce them at Plant S. In the production possibilities curve for both plants, the firm would be at M, producing 100 calculators at Plant R. Principles of Economics by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted. The plant with the lowest opportunity cost of producing snowboards is Plant 3; its slope of 0.5 means that Ms. Ryder must give up half a pair of skis in that plant to produce an additional snowboard. Conversely, the U.S. can produce a lot of wheat per acre, but not much sugar cane. Points that lie on the PPF illustrate combinations of output that are. The curvature of the PPF is likely to differ by country, which results in different countries having comparative advantage in different goods. Figure 2.4 Production Possibilities at Three Plants. a. better suited for the production of some goods than others. We will generally draw production possibilities curves for the economy as smooth, bowed-out curves, like the one in Panel (b). In the first case, a society may discover that it has been using its resources inefficiently, in which case by improving efficiency and producing on the production possibilities frontier, it can have more of all goods (or at least more of some and less of none). Most importantly, the production possibilities frontier clearly shows the tradeoff between healthcare and education. b. The study of economics does not presume to tell a society what choice it. Production had plummeted by almost 30%. Characteristics of PPF: The two basic characteristics or features of PPF are: 1. That will require shifting one of its plants out of ski production. Suppose two countries, the US and Brazil, need to decide how much they will produce of two crops: sugar cane and wheat. Given the labor and the capital available at both plants, it can produce the combinations of the two goods at the two plants shown. What could be wrong with an upward slopping PPF? View Answer. Here, an economy that can produce two categories of goods, security and all other goods and services, begins at point A on its production possibilities curve. The decision to devote more resources to security and less to other goods and services represents the choice we discussed in the chapter introduction. Allocative efficiency means that the particular combination of goods and services on the production possibility curve that a society produces represents the combination that society most desires. If however it had devoted all of its resources to producing sugar cane instead, it would be producing a much larger amount than the U.S., at point B. The U.S. has comparative advantage in wheat and Brazil has comparative advantage in sugar cane. Productive efficiency means it is impossible to produce more of one good without decreasing the quantity that is produced of another good. Direct link to Martin's post What is a budget constrai, Posted 3 years ago. Thus, all choices along a given PPF like B, C, and D display productive efficiency, but R does not. The PPF captures the concepts of scarcity, choice, and tradeoffs. Because the PPF is downward sloping from left to right, the only way society can obtain more education is by giving up some health care. When factors of production are allocated on a basis other than comparative advantage, the result is inefficient production. The combined production possibilities curve for the firms three plants is shown in Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports. I'm pretty sure it wasn't mentioned in previous videos in this section. Because society has limited resources (e.g., labor, land, capital, raw materials) at any point in time, there is a limit to the quantities of goods and services it can produce. .How would you define a production point that represent efficient versus inefficient use of the resources? Each of the plants, if devoted entirely to snowboards, could produce 100 snowboards. It retains its negative slope and bowed-out shape. What Is Economics, and Why Is It Important? A production possibilities frontier showing health care and education. A PPF w/Constant Opportunity Cost is a linear line, meaning the line is straight (not curved), and To be linear means the change between any two points anywhere on the line will be consistent. The Production Possibilities Frontier (PPF) is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. Did you have an idea for improving this content? We will see in the chapter on demand and supply how choices about what to produce are made in the marketplace. Plants 2 and 3, if devoted exclusively to ski production, can produce 100 and 50 pairs of skis per month, respectively. Why does a PPF curve have to slope downward? Direct link to anutkalaund's post I don't understand: if we, Posted 5 days ago. In a market-oriented economy with a democratic government, the choice will involve a mixture of decisions by individuals, firms, and government. Suppose society has chosen to operate at point B, and it is considering producing more education. The Great Depression was a costly experience indeed. It had enjoyed seven years of dramatic growth and unprecedented prosperity. Suppose Plant 1 is producing 100 pairs of skis and 50 snowboards per month at point B. Its land is devoted largely to nonagricultural use. There are at least two ways to read this list. She added a second plant in a nearby town. In the real world, of course, we have more than two goods and services, and we have more resources than just labor, but the general rule still holds. It suggests that to obtain efficiency in production, factors of production should be allocated on the basis of comparative advantage. But it does not have enough resources to produce outside the PPF. Solution The production possibility curve is downward sloping from left to right because more of good X can be produced only with less production of good Y, when the given resources are assumed to be fully and efficiently utilised, using the given technology. Every economy faces two situations in which it may be able to expand consumption of all goods. Producing 100 snowboards at Plant 2 would leave Alpine Sports producing 200 snowboards and 200 pairs of skis per month, at point C. If the firm were to switch entirely to snowboard production, Plant 1 would be the last to switch because the cost of each snowboard there is 2 pairs of skis. This happens because some resources are better suited for producing certain goods and services instead of others. When an economy is operating on its production possibilities curve, we say that it is engaging in efficient production. Here, the opportunity cost is lowest at Plant 3 and greatest at Plant 1. Take another look at the production possibilities frontier in this video about the imaginary Econ Isle.. This observation is based on the concept of efficiency. and you must attribute OpenStax. All choices along a production possibilities frontier display productive efficiency; that is, it is impossible to use societys resources to produce more of one good without decreasing production of the other good. 2. it, Posted 2 years ago. To construct a combined production possibilities curve for all three plants, we can begin by asking how many pairs of skis Alpine Sports could produce if it were producing only skis. 2.2 The Production Possibilities Frontier and Social Choices - OpenStax In that case, it produces no snowboards. However, for both the government and the market economy in the short term, increases in production of one good typically mean offsetting decreases somewhere else in the economy. As you read this section, you will see parallels between individual choice and societal choice. The Production Possibilities Frontier (article) | Khan Academy If you are redistributing all or part of this book in a print format, Because at any given moment, society has limited resources, it follows that theres a limit to the quantities of goods and services it can produce. To construct a production possibilities curve, we will begin with the case of a hypothetical firm, Alpine Sports, Inc., a specialized sports equipment manufacturer. The opportunity cost of each of the first 100 snowboards equals half a pair of skis; each of the next 100 snowboards has an opportunity cost of 1 pair of skis, and each of the last 100 snowboards has an opportunity cost of 2 pairs of skis. Posted 3 years ago. Wed love your input. In drawing production possibilities curves for the economy, we shall generally assume they are smooth and bowed out, as in Panel (b). Due to its climatic conditions, Brazil can produce a lot of sugar cane per acre but not much wheat. The sensible thing for it to do is to choose the plant in which snowboards have the lowest opportunity costPlant 3. (I mean, we should move point A higher and don't change point F.) The question about task 1 in Self-Check questions, "Output mixes that had more healthcare (and less education) would have a steeper ray, while those with more education (and less healthcare) would have a flatter ray.". Theres another way to think about this. Many countries, for example, chose to move along their respective production possibilities curves to produce more security and national defense and less of all other goods in the wake of 9/11. At A all resources go to healthcare and at B, most go to healthcare. Conversely, the U.S. can produce large amounts of wheat per acre, but not much sugar cane. Why is PPF downward sloping and concave? - Study.com With all three of its plants producing skis, it can produce 350 pairs of skis per month (and no snowboards). If on the one hand, very few resources are currently committed to education, then an increase in resources used for education can bring relatively large gains. However, improvements in productive efficiency take time to discover and implement, and economic growth happens only gradually. According to this law, with the fuller utilisation of the given resources, in order to produce an additional unit of one good, some of the resources are to be withdrawn from the production of another good. Except where otherwise noted, textbooks on this site Production of all other goods and services falls by OA OB units per period. Production Possibilities Frontier - saylordotorg.github.io If the firm were to produce 100 snowboards at Plant 3, ski production would fall by 50 pairs per month (recall that the opportunity cost per snowboard at Plant 3 is half a pair of skis). View history. If society has a total of 10 teachers, education can be provided to a maximum of 250 students. These intercepts tell us the maximum number of pairs of skis each plant can produce. It can produce skis and snowboards simultaneously as well. To log in and use all the features of Khan Academy, please enable JavaScript in your browser. An inefficient organization operates with long delays and high costs, while an efficient organization meets schedules, is focused, and performs within budget. Explain why societies cannot make a choice above their production possibilities frontier and should not make a choice below it. At point A, all available resources are devoted to healthcare and none are left for education. At the individual and. This choice is shown in Figure 1 at point A. Production possibilities represent the alternative choices of goods that the economy can produce. If there is always a three-for-one tradeoff between goods X and Y, then the PPF between X and Y is a. a downward-sloping curve that is bowed outward. After all, thats not what they were trained for. Suppose it begins at point D, producing 300 snowboards per month and no skis. The gains to education from adding these last few resources to education are very small. People are having cosmetic surgery on every part of their bodies, but no high school or college education exists. Direct link to nishankpatil25's post How to use clear it up fe, Posted 3 years ago. Figure 2.4 illustrates these ideas using a production possibilities frontier between healthcare and education. Because the PPF is downward sloping from left to right, the only way society can obtain more education is by giving up some healthcare. Want to cite, share, or modify this book? The Production Possibilities Frontier, Part 3 The Economic Lowdown Video Series. 18. The result is the bowed-in curve ABCD. The law of increasing opportunity cost tells us that, as the economy moves along the production possibilities curve in the direction of more of one good, its opportunity cost will increase. Instead of the bowed-out production possibilities curve ABCD, we get a bowed-in curve, ABCD. The attempt to provide it requires resources; it is in that sense that we shall speak of the economy as producing security. Our mission is to improve educational access and learning for everyone. Suppose it considers moving from point B to point C. What would be the opportunity cost for the additional education? 2.2 The Production Possibilities Frontier and Social Choices We recommend using a Often how much of a good a country decides to produce depends on how expensive it is to produce it versus buying it from a different country. Thus, all choices along a given PPF like B, C, and D display productive efficiency, but R does not. The gains we achieve through specialization are enormous. The doctors are good at medicine, but theyre not particularly good at teaching, so it doesnt make sense for them to switch. If youve ever pulled an all-nighter, youre probably familiar with the law of diminishing returns: as the night wears on and you get tired,every additional hour you studyis a little less productive than the one before. The curve shown combines the production possibilities curves for each plant. Suppose it considers moving from point B to point C. What would the opportunity cost be for the additional education? First, the economy might fail to use fully the resources available to it. The slope of the PPF gives the opportunity cost of producing an additional unit of wheat. The graph shows that when a greater quantity of one good increases, the quantity of other goods will decrease. How to determine what a society desires can be a controversial question, and is usually a discussion in political science, sociology, and philosophy classes as well as in economics. MicroEcon Ch 2 Quiz Flashcards | Quizlet For example, after not spending much at all on crime reduction, when a government spends a certain amount more, thegains in crime reduction could be relatively large. In this section, we shall assume that the economy operates on its production possibilities curve so that an increase in the production of one good in the model implies a reduction in the production of the other. This is a result of transferring resources from the production of one good to another according to comparative advantage. Due to the limitation of resources and technology, if the economy wants to produce more units of good 1, it has to reduce the quantity of good 2, which depicts the downwards slope of the PPF. The Production Possibility Frontier (PPF): Assumptions, Characteristics Points that lie inside (or below) the PPF are a . But the amount of education gained is great, because thats what teachers are trained for. The reason for this difference is pretty simple: the slope of a budget line is defined as the ratio of the prices of the two goods or services. In drawing the production possibilities curve, we shall assume that the economy can produce only two goods and that the quantities of factors of production and the technology available to the economy are fixed. The study of economics does not presume to tell a society what choice it should make along its production possibilities frontier. The Production Possibilities Frontier, Part 1 The Economic Lowdown Video Series. The opportunity cost would be the healthcare society has to give up. An inefficient machine operates at high cost, while an efficient machine operates at lower cost, because it is not wasting energy or materials. But it would not have any resources to produce education. Plant 3s comparative advantage in snowboard production makes a crucial point about the nature of comparative advantage. In the first case, a society may discover that it has been using its resources inefficiently, in which case by improving efficiency and producing on the production possibilities frontier, it can have more of all goods (or at least more of some and less of none). The opportunity cost would be the health care that society has to give up. The slope of the PPF at a given point is the amount of good 'A' that would have to be sacrificed to get an additional unit of good 'B" That is the opportunity cost of getting an extra unit of good . However, putting those marginal dollars into education, which is completely without resources at point A, can produce relatively large gains. The slope of the PPF gives the opportunity cost of producing an additional unit of wheat. These resources were not put back to work fully until 1942, after the U.S. entry into World War II demanded mobilization of the economys factors of production. At point A, Alpine Sports produces 350 pairs of skis per month and no snowboards. Thus, the slope of a PPF starts flat and becomes increasingly steeper. Opportunity cost - Khan Academy Should the government promote the product or what? Suppose it considers moving from point B to point C. What would the opportunity cost be for the additional education? What does a production possibilities frontier illustrate? The production possibilities frontier can illustrate two kinds of efficiency: productive efficiency and allocative efficiency. What do points outside of the PPF indicate? - WisdomAnswer In contrast, the PPF has a curved shape because of the law of the diminishing returns. Productive efficiency means it is impossible to produce more of one good without decreasing the quantity that is produced of another good. Had the firm based its production choices on comparative advantage, it would have switched Plant 3 to snowboards and then Plant 2, so it would have operated at point C. It would be producing more snowboards and more pairs of skisand using the same quantities of factors of production it was using at B. d. used to produce consumption goods. This situation would be extreme and even ridiculous. PDF Microeconomics 12th Edition Arnold Test Bank The curve is a downward-sloping straight line, indicating that there is a linear, negative relationship between the production of the two goods. These days, when you open a PPF account, the balance is available online. In radios? We can think of each of Ms. Ryders three plants as a miniature economy and analyze them using the production possibilities model. There are two major differences between a budget constraint and a production possibilities frontier. If Alpine Sports were to produce still more snowboards in a single month, it would shift production to Plant 2, the facility with the next-lowest opportunity cost. That is the tradeoff society faces. With all three plants producing only snowboards, the firm is at point D on the combined production possibilities curve, producing 300 snowboards per month and no skis. At point A . Most important, the production possibilities frontier clearly shows the tradeoff between healthcare and education. So it is constant because the slope is constantly the same. The U.S. PPF is flatter than the Brazil PPF implying that the opportunity cost of wheat in terms of sugar cane is lower in the U.S. than in Brazil. Why production possibility curve slopes downward - YouTube PPC is downward sloping because production of one item can be increased only after sacrificing some of the other good. The curvature of the production possibilities frontier shows that as we add more resources to education, moving from left to right along the horizontal axis, the original increase in opportunity cost is fairly small, but gradually increases. The shape of the PPF depends on whether there are increasing, decreasing, or constant costs. Imagine that society starts at choice D, which is devoting nearly all resources to education and very few to healthcare, and moves to point F, which is devoting. As we combine the production possibilities curves for more and more units, the curve becomes smoother. We would say that Plant 1 has a comparative advantage in ski production. Production and employment fell. OpenStax is part of Rice University, which is a 501(c)(3) nonprofit. Diverting some resources away from A to B causes relatively little reduction in health because the last few marginal dollars going into healthcare services are not producing much additional gain in health. Some workers are without jobs, some buildings are without occupants, some fields are without crops. Specialization implies that an economy is producing the goods and services in which it has a comparative advantage. However, it would not have any resources to produce education. Suppose Alpine Sports expands to 10 plants, each with a linear production possibilities curve. This is because its slope is given by the relative prices of the two goods, which from the point of view of an individual consumer, are fixed, so the slope doesn't change. Hong Kong, with its huge population and tiny endowment of land, allocates virtually none of its land to agricultural use; that option would be too costly. In our simple example above, there were two different resources: doctors and teachers, and each resource is better at one job than at the other. If every trade-off were the same, it would create a straight line. The shape of the PPF is typically curved outward, rather than straight. In an actual economy, with a tremendous number of firms and workers, it is easy to see that the production possibilities curve will be smooth. MacroEcon Prelim 1 Flashcards | Quizlet These are also illustrated with a production possibilities curve. The opportunity cost of the first 200 pairs of skis is just 100 snowboards at Plant 1, a movement from point D to point C, or 0.5 snowboards per pair of skis. This opportunity cost equals the absolute value of the slope of the production possibilities curve. When government spends a certain amount more on reducing crime, for example, the original increase in opportunity cost of reducing crime could be relatively small. Thus, the economy chose to increase spending on security in the effort to defeat terrorism. https://cnx.org/contents/vEmOH-_p@4.44:BxoHdm8G@8/The-Production-Possibilities-F, https://www.flickr.com/photos/senoranderson/3890652995/, https://www.youtube.com/watch?v=Nw0ugthoc8o, https://www.youtube.com/watch?time_continue=6&v=nsQi2ipSP2c, Explain the production possibilities frontier. That is certainly one possible way of allocating a societys resources, but it would mean there would be no resources left for education. Economists use a modelcalled the production possibilities frontier (PPF) to explain the constraints society faces in deciding what to produce. Also, explain why all points inside of that curve represent inefficient outcomes. If the firm wishes to increase snowboard production, it will first use Plant 3, which has a comparative advantage in snowboards. Graphically, the rise is small and the run is large so the slope (which is the ratio of rise over run) is flat. Only one of the productively efficient choices will be the allocatively efficient choice for society as a whole. Thus, the production possibilities curve not only shows what can be produced; it provides insight into how goods and services should be produced. Just as individuals cannot have everything they want and must instead make choices, society as a whole cannot haveeverything it might want, either. What this means is that from point A to B, the decrease in healthcare is small, while the gain in education is large. The plant for which the opportunity cost of an additional snowboard is greatest is the plant with the steepest production possibilities curve; the plant for which the opportunity cost is lowest is the plant with the flattest production possibilities curve. Figure 1. People work and use the income they earn to buyperhaps importgoods and services from people who have a comparative advantage in doing other things. For example in the marginal opportunity cost schedule given in Q. Understand specialization and its relationship to the production possibilities model and comparative advantage. Why the PPF is downward slopping? - Answers Plant 3 would be the last plant converted to ski production. What happen if society wants less products than what are on the productive efficiency point? The result is a far greater quantity of goods and services than would be available without this specialization. Opportunity cost. Figure 1 (shown again). concave towards the origin. For example, point R is productively inefficient because it is possible at choice C to have more of both goods: education on the horizontal axis is higher at point C than point R (E2 is greater than E1), and healthcare on the vertical axis is also higher at point C than point R (H2 is great than H1). The curve is a downward-sloping straight line, indicating that there is a linear, negative relationship between the production of the two goods. Clearly not. That is the tradeoff society faces. The next 100 pairs of skis would be produced at Plant 2, where snowboard production would fall by 100 snowboards per month. Society can choose any combination of the two goods on or inside the PPF, but it doesnthave enough resources to produce outside the PPF. Suppose a society allocated all of its resources to producing health care. b. a downward-sloping curve that is bowed inward.