Production Possibility Frontiers

I like the production possibility frontier (PPF) , especially when it comes together with a utility curve – a clear outline of what has to be produced in a given economy. The beauty of it – the simplicity, except it does not work that way in a real economy. PPF’s do not meet utility curves. The level of production is either planned – like public healthcare – or left to market mechanisms – like private healthcare.

But a closer look at the PPF raises a question: what is meant by resources1? A country’s stock of resources at a certain point in time, can be durable – you can use these over a longer period of time like machines -, or they can be non-durable – they will be used up in a production process. Durable resource will depreciate, which will shift the PPF inward, so that fits the model. Non-durable resources might be another matter.

Non-durable resources can be renewable – like barley growing on farmland -, or non-renewable – like an energy source such as oil. The rate of renewal of renewable resources sets a limit to the availability of these resources, thus restricting outwards shifts of the PPF. This we can cover in the model too. But what about non-renewable resources? Most of these kind of resources are a stock – like oil in the crust of the earth -, and have an outflow through extractions from stock – we could also decide to leave it in stock. So, how much of the stock available to us do we reckon among our current resources?

How can you use this in your lessons?

What I noticed in my textbook was that in the discussion of the PPF, the emphasis is either on the growth of the work-force, or on investments either in the quality of the workforce or the quantity and quality of capital goods. Why not look at the PPF from an ecological perspective, and include the implications of the rate of renewal of renewable resources, and the impact of the depletion of non-renewable resources on the PPF?2

  1. In my textbook – Edexcel AS/A Level Economics 6th edition by Alain Anderton -, the PPF is defined as follows: “A PPF shows the different combinations of goods which can be produced if all resources are fully and efficiently used.”
  2. This reminds me of the fishing industry, where the stock of capital goods had to be reduced, because the rate at which the fish were caught surpassed the rate of renewal.