1. Production possibility frontier (PPF)
We must assume that

2. The output level of an economy6 2
Good X
Good Y A
Assume we have a 2 goods economy.
We use production inputs: labor, resources, capital, methods to produce output.
At every point in the chart we then have an output of an economy in respect to these two different goods for which we use different inputs of our economy. 2 8 B

3. Production possibility frontier
Suppose it is possible for our country to produce 2 units of good X and 6 units of good Y. 6 2
Good X
Good Y A
If we plot good X horizontally and good Y vertically this is represented by point A.
Alternatively, suppose that the country, if it wanted to, could produce 8 units of good X and 2 units of good Y.
This is represented by point B. 2 8 B
X – ex Y łaj

4. Production possibility frontier
Perhaps, country cannot only produce combinations A and B but also many other different combinations.
Good X
Good Y B
Here we have drawn a few.
We call the line connecting all possible different combinations
the production possibility curve (frontier). A

5. Production Possibilities Curve – example for Grades in Mathemtics and Economics
A – only this extreme positions are
In this case expect a grade A
X axis Y axis

6. Production possibility frontier – definictions
For each level of the output of one good, the production possibility frontier shows the maximum amount of the other good that can be produced.
A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently.
A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.

7. Production possibility frontier
Note that the
production possibility curve
only connects
Good Y
efficient
(2 X and 2 Y) can be produced by Holland, but it
Point C
could produce more of Y (at A) or
production combinations. A
more of X (at B) or more of both
goods (the line
between A and B). B C 6
Good X

8. Production possibility frontier
Thus, the
production possibility curve
represents
efficient
output combinations.
Good X
Good Y
final output (including non-optimal combinations)
All possible combinations of
is called the
production possibility set.
All this triangle

9. Production possibility frontier – definictions
PPF has great application in international trade theory.
Helps one understand difference between comparative advantage and absolute advantage.
It also an important historical figure in all this is David Ricardo.

10. David Ricardo Famous 19th century British economist.
Some consider him the grandfather of international trade theory.
Very influential in pioneering the theory of comparative advantage.
Had a lot of say about the „corn laws” in England.
By analysing this market, he created a production posibbility frontier.

11. A Typical PPF Picture The PPF is typically bowed-out or linear.
It is not bowed-in
Good Y
Very important aspect / feature of
Good X

12. The Shape of the PPF
The PPF is outward-shaped because its shape depends on increasing opportunity costs of one good to another.
Example:
Food and timber with the only available resource is land. First we use up the best land for farming, but with increasing, returns from farming go down since we are using worse land. To produce 1 extra unit of food, we need more and more land, it cost more and more in timber production.
Good Y
At the expense of – kosztem
In order to produce more units of food
Good X

13. The Shape of the PPF
In the linear case the slops at all points are identical, while in the bowed case they are different point by point.
The slope here means the quantity of good X the economy should give up in order to produce one unit of good Y.
Good Y
Good X

14. Marginal Rate of Transformation (MRT)
As we can see, in order for this economy to produce more pizza, it must give up some of the resources it uses to produce robots (point A). If the economy starts producing more robots, it would have to divert resouces from making pizza and consequently, it will produce less pizza than it is producing at point B.
Consumer Goods (Pizza)
100 A 90
Cost = 40 pizzas B 50
Benefit = 20 robots
Capital Goods (Robots) 25 45 50

15. Marginal Rate of Transformation (MRT)
Consumer Goods (Pizza)
For robots production to be increased, pizza production must necessarily fall.
The marginal rate of transformation of pizza for robots shows the rate at which the economy can transform pizza to robots.
It is the absolute value of the slope of the production possibilities curve.
MRT = -R / P
100 A 90
Cost = 40 pizzas B 50
We have to shift / transfer 40 units of pizza to 20 units of robots more / to the prodution od robots.
Minus here shows that we give up certain product at certain level . We deside to produce less / fever units of pizza.
We can calculate MRT by dividing …
Benefit = 20 robots 25 45 50
Capital Goods (Robots)

16. Marginal Rate Of Transformation
The rate at which one good must be sacrificed in order to produce a single extra unit (or marginal unit) of another good, assuming that both goods require the same scarce inputs.
The marginal rate of substitution is tied to the production possibilities frontier (PPF), which displays the output potential for two goods using the same resources. To produce more of one good means producing less of the other because the resources are efficiently allocated.

17. Good Y
In the linear case the slopes at all points are identical point by point.
If we want to produce one more good X the slope is exactly same to the quantity we should give up.
Every time a given number of resources is shifted from good Y to X, 10 units of good Y are given up in return for 10 units of good X. 60 50 40 30 20 10 10 20 30 40 50 60
Good X

18. In the bowed case they are different point by point.
In reality, resources are unlikely to be equally productive in both industries. Some equipment may be designed specifically for some types of production rather than others. Some employees may not be able to transfer their skills easily from one sector to another.
This may lead to diminishing returns to a factor. This means that every time a given number resources is transferred from industry Y to industry X, finally fever units of good Y are produced.
Good Y 40 32 20
The slopes at all points are different.
By another ten unit ( o kolejne 10 jedn.) from industry Y to industry X
The cost of this operation is hight thab in the previous period 10 20 30
Good X

19. Law of Increasing Relative Cost
As society attempts to produce more units of certain good, the opportunity cost of additional units of that good generally increases.
With what I have already presented / talk about there is … closely connected
It was shown / wsa described in those last picture

20. Attainability of Production Level
Since the PPF shows the limits to outputs of our economy, we can see directly, which outputs levels are attainable and which ones are unattainable.
Good Y
Attainable
Unattainable
Attainable
Attainable
Where we are talking about PPF we also have to mention / describe/ show ..
Over
Below
As you remember this PPf means / stands for
Good X

21. Efficiency and the PPF
According to the PPF points A and B - appearing on the curve – represent the most efficient use of resources by the economy.
Point C represents an inefficient use of resources, while point D represents the goals that the economy can not attain with its present levels of resources. D
Good Y
Efficient
Unattainable A C
Inefficient
Efficient B
Placed on / which are on the curve
Good X

22. Efficiency Efficiency is getting the most from available resources.
The case in which a given level of inputs is used to produce the maximum output possible.
The situation in which a given output is produced at minimum cost.
The condition in which there is no possibility to rearrange production inputs which means we can not increase the production of one good without decreasing the production of another good.

23. Inefficiency
Waste and mismanagement are the results of a firm’s operating below its potential.
Sometimes, inefficiency results from mismanagement of the whole economy instead of mismanagement of individual private firms.
Is the situation when ..

24. Reasons for the Inefficiency
Typically countries aren’t operating along the PPF.
Reasons:
Un-/underemployment,
Resources or capital not used efficiently / is waste
Not the best technologies are applied
More fundamentally:
Imperfect information
Uncertainty
Laws and regulations
Market failures
Guess – zgadywać, precise information
Might buy/ want
Create new jobs/ workplace
changes in laws are not convienient for producers
It affects / in influence

25. So the PPF reflects all the points at which we use our resources optimally / efficiently, so that we cannot increase our output while keeping inputs (labor, capital, technologies …) constant.

26. The location of any economy depends on the choices by all agents in society. Every household and firm demands certain goods and services. Demand informs firms which products they can shall supply and process form according to demand and supply.
Consumer Goods (Pizza)
100 90 50
Capital Goods (Robots) 25 45 50

27. Changes in the PPF
Consumer Goods (Pizza)
The PPF is determined by all production inputs: labor, capital, technology, resources. An increase in one or more of them will shift the PPF out.
Unattainable with current resources and technology
100 a d 90
Cost = 40 pizzas
policy c b . 50
Inefficient – unemployed resources
Which seems quiet natural / obvious
Benefit = 20 robots 25 45 50

28. The PPF and Economic Growth
Consumer Goods
Economic Growth = (change in GDPt) (change in GDPt-1)
GDP at t
GDP at t-1
Economic Growth
Are becoming attainable
At lower cost of production
Are not necessary
Earlier – wczesniejszy
Later - późniejszy
Capital Goods

29. Economic Growth
Economic growth is an increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.

30. Reasons for Economic Growth
Physical capital – use capital more efficiently or add new capital.
Human capital / labor – use labor more efficiently: educate/ train.
Technology – use existing or new technologies to reorganize production in a better way.
Resources – use more resources or use resources more efficiently.
Entrepreneurship – create incentives for investements: improving business environment, start up capital.
In other words

31. Literature
Gillespie, Andrew (2007). Foundations of Economics, The production possibility frontier (curve): the PPF or PPC, Oxford University Press.