Production Possibilities Frontier Worksheet

Production Possibilities Frontier

Read each question carefully and answer to the best of your ability. Use the provided space for your responses.

The Production Possibilities Frontier (PPF) is a model that illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed.

Consider an economy that produces only two goods: Cars and Computers.

Analyze the Production Possibilities Frontier diagram below and answer the questions that follow:

1. What does point 'U' represent on the PPF?

2. What does point 'E' represent on the PPF?

3. If the economy moves from point A to point B, what is the opportunity cost?

1. The Production Possibilities Frontier illustrates the economic concept of  .

2. Any point inside the PPF indicates that resources are being used  .

3. If an economy is operating on its PPF, to produce more of one good, it must   less of another good.

4.   cost is the value of the next best alternative that must be forgone when making a choice.

1. A country can produce beyond its current PPF if it discovers new resources or improves technology.

2. Every point on the PPF represents an inefficient allocation of resources.

1. Explain the concept of 'scarcity' and how the PPF model helps to illustrate it.

2. Describe what causes an outward shift of the Production Possibilities Frontier.