Ppf Diagram Potential Growth. As we move down the ppf as more resources are allocated towards good y the extra output gets smaller so more of good x has to be given up in order to produce good y. The idea of a production possibility frontier ppf also sometimes called a production possibilities curve can seem difficult.
An outward shift of the ppc results from growth of the availability of inputs such as physical capital or labour or from technological progress in knowledge of how to transform inputs into outputs. Consider the ppf diagram below. Let us refer to diagram 3 and assume that the current ppf is at ppf1 and the economy is actually producing at point d this is known as the de facto output in the classroom setting you can think of a student performing at level c although he has the potential of obtaining level a ppf can shift from ppf1 to ppf2 through investment in human capital physical capital resource exploration.
Pareto efficiency is any point on the ppf curve.
However if you understand the intuition behind the economics of the ppf it is really just a graphical representation of what a country or individual is able to produce with a fixed amount of inputs. It does not necessarily mean that the gdp has risen whether the potential is actually used will depend on changes in demand in the. An outward shift of a ppf means that an economy has increased its capacity to produce. Let us refer to diagram 3 and assume that the current ppf is at ppf1 and the economy is actually producing at point d this is known as the de facto output in the classroom setting you can think of a student performing at level c although he has the potential of obtaining level a ppf can shift from ppf1 to ppf2 through investment in human capital physical capital resource exploration.
