In this video, I'm going to introduce you to an economic model called the production possibilities frontier. So here we have a graph with the production possibilities frontier on it. We're gonna call it the PPF for short. Some books call it the PPC, but I'm gonna use PPF throughout these videos. So, the PPF is a graph showing the combinations of output an economy can produce with the available resources, right? This is what kind of mix of products can we produce with what we have, alright? So, we're gonna make some assumptions when we deal with this graph. We've got 2 goods; that's what's gonna be the production in our society. In this example, we've got the economy of Clutchtopia here creating both thin-crust pizzas and robots, right. That is what we produce in Clutchtopia: thin-crust pizza and robots. We're gonna assume we've got a fixed amount of resources, right? This involves scarcity. We don't have unlimited resources; we have a fixed amount and for our example, it's not gonna grow or shrink. We've got a certain amount of resources, a certain amount of labor, a certain amount of land, human capital, right? So, it's a certain amount of the inputs into the process. And our last assumption is that we've got fixed technology as well. Okay? So nothing's gonna be changing in this society. That's the idea. Alright. So let's go to the graph. We've got Clutchtopia, producing thin-crust pizzas and robots. So along this line is what we call the PPF. This blue line on the graph, that is Clutchtopia’s PPF. So that is the production possibilities frontier, and when we look at this graph, we're going to look at a couple of key points here. So, if we look at the point way up here on the graph where we're producing 10,000 robots up there, right? We got 10,000 robots but no pizza. So in Clutchtopia, if we put all our efforts into robot production, we could have 10,000 robots. Now let's say Clutchtopia put all their efforts into pizza production. For thin-crust pizzas, we could pop out 4,000,000 pizzas, right, but 0 robots if we were at this point down here on the graph, but we can also produce some mix of the two. Right? We can have some robots and some pizza. But we know that if we have 4,000,000 pizzas, we're not gonna be able to have any robots. Right? So 4,000,000 is the maximum amount of pizzas with no robots, but let's say we're at a point like right here. Right? We can have a mix of say 3,000,000 pizzas and 4,000 robots there, right? So anywhere along that line is still part of the mix we can attain. Right? So we've got two things to think about. We've got attainability, right? Is it attainable or unattainable, this level of production? So what we're gonna say is that anywhere inside and on the graph or, excuse me, on the PPF as well. Inside and on the line is attainable. It’s a mix of production that we can attain. Right? So what I’m saying here is yes, we could be at this line on the line here at 3,000,000 pizzas and 4,000 robots, but it’s totally possible that we could be say at this point right here in blue where we’re producing 1,000,000 pizzas and 2,000 robots. Right? That is still an attainable amount of production. Compare that to an unattainable amount. So I’m gonna write attainable here inside of yellow. Attainable. And for unattainable, I'm going to use this light blue. So anything out here, outside the graph, right, anything outside the graph is gonna be unattainable. It’s an amount of production that we cannot achieve with our current resources, our current technology. Right? So let me show you an example here. If I were to put a point out here, say, at this point in blue, now we’re saying we want 3,000,000 pizzas and 7,000 robots, and that’s just unattainable because it’s outside of the curve. So, outside of the curve is unattainable. Okay? So inside is attainable, outside is unattainable. And one more thing I wanna talk to you about real quick is productive efficiency and allocative efficiency. So we call something productively efficient if you'll scroll down a little bit, we've got here: productive efficiency is producing at any point on the PPF. So any point on the PPF is productively efficient. That means we are getting the most we can with our current situation, right? So, we're saying we're efficient if we're anywhere along the curve. So this point right here if we go back to the curve, I'm gonna start putting some points in black. All these points are productively efficient anywhere here along the graph, right. That's all productively efficient on the graph. Okay. And allocative efficiency, if you see right there below productive efficiency, that's just a little more subjective. This is that you're producing the correct mix based on consumer preferences. So that’s the idea of do the consumers of Clutchtopia, do they want 3,000,000 pizzas or do they want 1,000,000 pizzas? It all depends on the consumer choices and that's the allocative efficiency that you see, but on the graph it’s easy to tell if you’re being productively efficient. Productive efficiency is reached by being on the graph. Cool? So let’s continue and we’ll do a practice.
Table of contents
- 0. Basic Principles of Economics1h 5m
- Introduction to Economics3m
- People Are Rational2m
- People Respond to Incentives1m
- Scarcity and Choice2m
- Marginal Analysis9m
- Allocative Efficiency, Productive Efficiency, and Equality7m
- Positive and Normative Analysis7m
- Microeconomics vs. Macroeconomics2m
- Factors of Production5m
- Circular Flow Diagram5m
- Graphing Review10m
- Percentage and Decimal Review4m
- Fractions Review2m
- 1. Reading and Understanding Graphs59m
- 2. Introductory Economic Models1h 10m
- 3. The Market Forces of Supply and Demand2h 26m
- Competitive Markets10m
- The Demand Curve13m
- Shifts in the Demand Curve24m
- Movement Along a Demand Curve5m
- The Supply Curve9m
- Shifts in the Supply Curve22m
- Movement Along a Supply Curve3m
- Market Equilibrium8m
- Using the Supply and Demand Curves to Find Equilibrium3m
- Effects of Surplus3m
- Effects of Shortage2m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 16m
- Percentage Change and Price Elasticity of Demand10m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
- Consumer Surplus and Willingness to Pay38m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Areas54m
- 6. Introduction to Taxes and Subsidies1h 46m
- 7. Externalities1h 12m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. The Costs of Production2h 35m
- 11. Perfect Competition2h 23m
- Introduction to the Four Market Models2m
- Characteristics of Perfect Competition6m
- Revenue in Perfect Competition14m
- Perfect Competition Profit on the Graph20m
- Short Run Shutdown Decision33m
- Long Run Entry and Exit Decision18m
- Individual Supply Curve in the Short Run and Long Run6m
- Market Supply Curve in the Short Run and Long Run9m
- Long Run Equilibrium12m
- Perfect Competition and Efficiency15m
- Four Market Model Summary: Perfect Competition5m
- 12. Monopoly2h 13m
- Characteristics of Monopoly21m
- Monopoly Revenue12m
- Monopoly Profit on the Graph16m
- Monopoly Efficiency and Deadweight Loss20m
- Price Discrimination22m
- Antitrust Laws and Government Regulation of Monopolies11m
- Mergers and the Herfindahl-Hirschman Index (HHI)17m
- Four Firm Concentration Ratio6m
- Four Market Model Summary: Monopoly4m
- 13. Monopolistic Competition1h 9m
- 14. Oligopoly1h 26m
- 15. Markets for the Factors of Production1h 33m
- The Production Function and Marginal Revenue Product16m
- Demand for Labor in Perfect Competition7m
- Shifts in Labor Demand13m
- Supply of Labor in Perfect Competition7m
- Shifts in Labor Supply5m
- Differences in Wages6m
- Discrimination6m
- Other Factors of Production: Land and Capital5m
- Unions6m
- Monopsony11m
- Bilateral Monopoly5m
- 16. Income Inequality and Poverty35m
- 17. Asymmetric Information, Voting, and Public Choice39m
- 18. Consumer Choice and Behavioral Economics1h 16m
2. Introductory Economic Models
Production Possibilities Frontier (PPF) - Introduction and Productive Efficiency
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