2. • Production possibility frontier (PPF): curve showing the
maximum combination of goods or services that can be
produced in a given period with available resources.
3. Now we need to think
about the economy as
a whole rather than
the individual.
Consumption and investment
• Consumer goods are for present use, whereas the
capital goods are to be used to increase the future
capacity of the economy – in other words, for
investment
4. Production Possibility Frontiers
Capital Goods
Ym
Yo
A
If it devotes all
Assume a country
If the country is
resources to capital
If it reallocates its
can produce the
at pointcould two
resources (moving round
goods it A on
types can to B)
the PPF from maximum
A
PPF It ofagoods it can
produce
produce more consumer
with its the
of Ym.
produceresources
goods but only at the
– capital goods
combination of Yo
expense of fewer capital
If it devotes all its
and The opportunity
goods.consumer and
resources to
capital goods
goods
cost of producing anit
consumer goods extra
Xo X1 consumer
Xo – consumer goods
could produce a
is Yo – Y1 capital goods.
goods
maximum of Xm
B
Y1
Xo
X1 Xm Consumer Goods
5. Shifts in the production possibility frontier
• Increase in the quantity or
quality of resources.
• Expansion of further and
higher education and
government training schemes.
• Increase in investment
• Development of new
technology
7. MCQs page 14 of workbook
Examiner tips
Always define key economic
concepts in the supported
multiple and data response
questions. Marks are always
awarded for this
Be prepared to annotate or
draw a diagram of a PPF when
answering questions on this
concept. Marks are usually
available in the mark scheme
