why is the ppf downward sloping

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. a. In other words, each resource is not worth the same at producing different products. Our mission is to improve educational access and learning for everyone. For this reason, the shape of the PPF from A to B is relatively flat, representing a relatively small drop-off in health and a relatively large gain in education. The slope of the linear production possibilities curve in Figure 2.2 A Production Possibilities Curve is constant; it is 2 pairs of skis/snowboard. As it does, the production possibilities frontier for a society will shift outward and society will be able to afford more of all goods. Countries tend to have different opportunity costs of producing a specific good, either because of different climates, geography, technology, or skills. True. In effect, the production possibilities frontier plays the same role for society as the budget constraint plays for an individual consumer. This implies as the production of one good increases, the quantity produced of the other good decreases. However, putting those marginal dollars into education, which is completely without resources at point A, can produce relatively large gains. 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. Suppose it considers moving from point B to point C. . The lesson is not that society is likely to make an extreme choice like devoting no resources to education at point A or no resources to health at point F. Instead, the lesson is that the gains from committing additional marginal resources to education depend on how much is already being spent. 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. 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. 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. What is allocative efficiency? It need not imply that a particular plant is especially good at an activity. 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. Production possibilities represent the alternative choices of goods that the economy can produce. Economists use a modelcalled the production possibilities frontier (PPF) to explain the constraints society faces in deciding what to produce. Why is the PPF downward sloping? Suppose society has chosen to operate at point B, and it is considering producing more education. Direct link to nishankpatil25's post How to use clear it up fe, Posted 3 years ago. To understand why the PPF is curved, start by considering point A at the top left-hand side of the PPF. 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. Whether or not we have specific numbers, conceptually we can measure the opportunity cost of additional education as society moves from point B to point C on the PPF. Suppose two countries, the US and Brazil, need to decide how much they will produce of two crops: sugar cane and wheat. The reverse is also true; the U.S. has a lower opportunity cost of producing wheat than Brazil. In our example, all three plants are equally good at snowboard production. What type of resources are going to move to producing education? Productive efficiency means that, given the available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good. An economy that is operating inside its production possibilities curve could, by moving onto it, produce more of all the goods and services that people value, such as food, housing, education, medical care, and music. Suppose it considers moving from point B to point C. What would the opportunity cost be for the additional education? Suppose society has chosen to operate at point B, and it is considering producing more education. A Healthcare vs. Education Production Possibilities Frontier, The graph shows that a society has limited resources and often must prioritize where to invest. 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. 1.12 we . b. An economy achieves a point on its production possibilities curve only if it allocates its factors of production on the basis of comparative advantage. The most important difference between the two graphs, though, is that a budget constraint is a straight line, while a production possibilities curve is typically bowed outwards, i.e. This happens because some resources are better suited for producing certain goods and services instead of others. We can show the particular mix of goods and services producedthat is, the specific combination of selected healthcare and education along the production possibilities frontieras a ray (line) from the origin to a specific point on the PPF. Suppose a society desires two products, healthcare and education. One can easily see this with a simple observation of the extreme production points in the PPFs of the two countries. An economy's production possibilities boundary is given by 45 = A + 5B, where A is the quantity of good A and B is the quantity of good B. 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. In drawing production possibilities curves for the economy, we shall generally assume they are smooth and bowed out, as in Panel (b). This production possibilities curve includes 10 linear segments and is almost a smooth curve. If this were a real world example, that data would be available. I don't agree with the statement that allocative efficiency must imply productive efficiency. Clearly, the transfer of resources to the effort to enhance national security reduces the quantity of other goods and services that can be produced. As a conceptual model, it simplifies. budget line) will be constant, but when there is more than one scarce resources, the trade-off will be increasingly costly (e.g. b. a downward-sloping curve that is bowed inward. Its resources were fully employed; it was operating quite close to its production possibilities curve. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . Want to cite, share, or modify this book? The opportunity cost would be the healthcare society has to forgo. PPC is downward sloping because production of one item can be increased only after sacrificing some of the other good. In the book 'Principles of Microeconomics' where this article is taken from, budget constraints are discussed first then PPF. 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. Allocative efficiency means that the particular mix of goods being producedthat is, the specific choice along the production possibilities frontierrepresents the allocation that society most desires. Countries differences in comparative advantage determine which goods they will choose to produce and trade. This opportunity cost equals the absolute value of the slope of the production possibilities curve. Just because you can make a billion phones because it is along the PPF curve is not reasonable. That will require shifting one of its plants out of ski production. She added a second plant in a nearby town. In particular, its slope gives the opportunity cost of producing one more unit of the good in the x-axis in terms of the other good (in the y-axis). Because the PPF is downward sloping from left to right, the only way society can obtain more education is by giving up some healthcare. Now consider what would happen if Ms. Ryder decided to produce 1 more snowboard per month. But the direction that PPF is curved comes from the way that the trade-offs change. Why does the PPF is a downward sloping curve? Conversely, as we add more resources to healthcare, moving from bottom to top on the vertical axis, the original declines in opportunity cost are fairly large, but again gradually diminish. Why does the PPF have a different shape? The economy had moved well within its production possibilities curve. This situation would be extreme and even ridiculous. What determines how far a PPF is from the origin. It illustrates the production possibilities model. At its most basic, allocative efficiency means producers supply the quantity of each product that consumers demand. Putting its factors of production to work allows a move to the production possibilities curve, to a point such as A. 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. Points that lie inside (or below) the PPF are a . Points on the production possibilities curve thus satisfy two conditions: the economy is making full use of its factors of production, and it is making efficient use of its factors of production. Whats the difference between a budget constraint and a PPF? 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. An inefficient machine operates at high cost, while an efficient machine operates at lower cost, because it is not wasting energy or materials. What does a production possibilities frontier illustrate? Figure 2.4 illustrates these ideas using a production possibilities frontier between healthcare and education. Where will it produce the calculators? At D most resources go to education, and at F, all go to education. Opportunity cost is the trade-off that one makes when deciding between two options. Suppose it considers moving from point B to point C. What would the opportunity cost be for the additional education? Wed love your input. b. used efficiently. If the firm wishes to increase snowboard production, it will first use Plant 3, which has a comparative advantage in snowboards. The firm then starts producing snowboards. Explain. The steeper the curve, the greater the opportunity cost of an additional snowboard. How Economists Use Theories and Models to Understand Economic Issues, How To Organize Economies: An Overview of Economic Systems, Introduction to Choice in a World of Scarcity, How Individuals Make Choices Based on Their Budget Constraint, Confronting Objections to the Economic Approach, Demand, Supply, and Equilibrium in Markets for Goods and Services, Shifts in Demand and Supply for Goods and Services, Changes in Equilibrium Price and Quantity: The Four-Step Process, Introduction to Labor and Financial Markets, Demand and Supply at Work in Labor Markets, The Market System as an Efficient Mechanism for Information, Price Elasticity of Demand and Price Elasticity of Supply, Polar Cases of Elasticity and Constant Elasticity, How Changes in Income and Prices Affect Consumption Choices, Behavioral Economics: An Alternative Framework for Consumer Choice, Production, Costs, and Industry Structure, Introduction to Production, Costs, and Industry Structure, Explicit and Implicit Costs, and 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Economics, A Healthcare vs. Education Production Possibilities Frontier.
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