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Productive Efficiency And In Efficiency Of A Production Possibility Frontier

1408 words - 6 pages

Productive Efficiency and In Efficiency of a Production Possibility Frontier (PPF) Introduction
The production possibility frontier is also known as the (PPF) in the economics world. It is simply a graph or diagram that does clearly show the production rate of two goods and/or services that an economy does produce efficiently or inefficiently over a given period of time. It accurately shows the production levels of the maximum to the minimum amounts produced in a uniformly drawn curve. This is usually compared to another curve that shows shifts either above or below the original one. This second curve clearly shows the production efficiency or inefficiency under given factors which either favor for or against the production levels of a given economy (Thompson 1985). Identifiable major points are drawn on the graph using two major factors while holding others constant and then a curve is drawn using several points on the graph (major points). Minor points that are usually within this curve are usually considered to be reachable but not efficient (Christensen, Jorgenson & Lau 1973).
Statement
Although most curves are drawn being concave like, that is bulging outwards from the starting point; the PPFs can be at times represented as straight lines or convex like shaped, which are bulging inwards from the origin of the graph or diagram. This depends on the amount of factors under consideration. PPFs which are also known as the production possibility curve or product transformation curve are used to represent several aspects like, resource scarcity , real costs of forgone alternatives (opportunity costs), economies of scale and even the efficiency of a given production in an economy. Basically an outward shift of the PPFs curve is as a result of growth of the availability of input factors (Thompson 1985).
These input factors could either be the growth of the labor quantity that is physical capita or technological advancement of the present laborers that does transform the inputs to positive output. The outward shifts are well known to accommodate the growth of an economy that is maximally operating in the PPF. Basically this means more outputs can be greatly achieved without entirely reducing the output of either of the goods under consideration within a given period of time for an economy (Diewert 1973).
On the other side of the coin, an inward curve shift in a PPF can be caused by the following: the reduction in the size of labor force in a given economy, the utilization raw materials supplied poor technologies and even outcome of natural disasters that indirectly affects the size of the labor hence reduction in the productivity output. Most contractions in the PPFS do represent the economies operation below the required frontier while clearly showing its main priorities (Diamond & Merles 1971). A good example is the choice by an economy to produce relatively more capital goods or services and relatively fewer consumer goods or services, or...

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