Production Possibility Frontier

Production possibility curves are also known as production possibility frontiers. What a PPF curve shows is the total combination of goods and services a country can produce with its fixed level of resources. It highlights the concept of scarcity and opportunity cost. (e.g. how if you want more production of staple foods you would to reduce production of cash crops). A production possibility curve can show how the economy of a country is doing.

A production possibility frontier is curved because of the law of diminishing returns which occurs because the workers who specialize in the production of one service is not as efficient as the production of another good or service.
Economic growth is when the economy increases productivity or the level of resources. It is represented by the outward shift of the PPC curve from PPC1 to PPC2. The potential output of the economy rises.

Potential output is when resources are fully utilized at the maximal efficiency.

Actual growth occurs when the economy decides to utilize more resources or decides to use it more efficiently hence increasing output. This is represented by the movement of the production point X to point Y. The respective outputs can be found by drawing lines to the axis.


Actual output is the level at which the economy is performing at. It is always below the potential output as resources are never fully employed or used most efficiently.The opportunity cost of production X1 to X2 more staple goods is Y1 to Y2 loss of cash crops.

What differentiates Economic Growth and Economic Development is the way the production possibility frontier changes. If the growth in staple food/healthcare/merit/public goods is greater than cashcrops/military defence/demerit goods/luxury goods, then an economy can be deemed to have experienced economic development. The people are now theoretically better off.