8/27/25
Production Possibilities Frontier (PPF)
Three types of points
T ·
points that lie beyond the PPF
X are not feasable /attainable w/
600A
societies limited available resources
4
-" ·
Points that lie inside the PPF are
attainable but not productively
25 80
Rolls of efficient
sushi
Points
·
on the PPF are attainable
Calculating opportunity costs along the PDF and productively efficient
only makes sense for points that are productively efficient
·
the additional unit of A is
·
opportunity cost of producing one
good
# of units of Good B given up = B
# of units of Good A
gained
ex
:
calculating opportunity costs along a linear ppf
B The OC of producing an additional roll
:
of sushi is
:
A
-
15 pairs of shoes lost-
20 rolls of sushigained
= pair of shoes (for each additional
giving up E, pair of
roll ,
shoes
C-D The OC of producing an additional roll of Sushi is :
30 pairs
40
of shoes =
E pair of shoes
rolls of sushi
For all straight line PPF ,
as we move
along the line the
opportunity cost is constant
C The opportunity cost of
-
D
:
producing an additional pair of shoes :
40 rolls of sushi
== 1 . 33 rolls of sushi
30 pairs of shoes
C-A :
The opportunity cost of producing an additional pair of
40 rolls sushi 33 rolls of Sushi
Y
= = 1 .
30 pairs shoes
Opportunity costs are reciprocals
, 8/27/25
Calculating Opportunity Costs Along a Bowed-out PPF
Books OCp =
opportunity cost of pizza
A
⑨ - B
A
:
a ---
OCp
:ices it book
B +
C
slice of =
3 books =
3 books
Pizza OCp 10 Slices
OCB opportunity
=
cost of 1 book
C +
B
OCB 10 Slices of pizza 3 33 Slices of pizza for
1
=
: = .
3 books each additional book
B =
10 Slices = 10 slises of pizza
OCB I book
When moving from BJA
,the opportunity cost of 1 book
is 10 Slices of pizza
Some observations
along a linear PPF, opportunity costs
·
are constant,
because all resources are equally suited to producing
both goods
·
along a bowed out PPF, opportunity costs are increasing ,
because not all resources are equally suited to producing
both goods
, 8/27/25
Absolute Advantage
·
A country or individual has an AA in making aparticular
good if it can produce more units of that good than
another country or individual
Comparative Advantage
A individual has
country or
producing a particular
CA in
·
a
good if it can produce that good as a lower opportunity
cost than another country or individual
·
Mexico Costa Rica
- E
produce
consume ~
O,
-----
S
produce
200
Avocado
i75
Avocados
OCA OCa
l ==
:
= S banana a 1 33 banana
.
OCc O
== 133 avocados
= is avocado
Production Possibilities Frontier (PPF)
Three types of points
T ·
points that lie beyond the PPF
X are not feasable /attainable w/
600A
societies limited available resources
4
-" ·
Points that lie inside the PPF are
attainable but not productively
25 80
Rolls of efficient
sushi
Points
·
on the PPF are attainable
Calculating opportunity costs along the PDF and productively efficient
only makes sense for points that are productively efficient
·
the additional unit of A is
·
opportunity cost of producing one
good
# of units of Good B given up = B
# of units of Good A
gained
ex
:
calculating opportunity costs along a linear ppf
B The OC of producing an additional roll
:
of sushi is
:
A
-
15 pairs of shoes lost-
20 rolls of sushigained
= pair of shoes (for each additional
giving up E, pair of
roll ,
shoes
C-D The OC of producing an additional roll of Sushi is :
30 pairs
40
of shoes =
E pair of shoes
rolls of sushi
For all straight line PPF ,
as we move
along the line the
opportunity cost is constant
C The opportunity cost of
-
D
:
producing an additional pair of shoes :
40 rolls of sushi
== 1 . 33 rolls of sushi
30 pairs of shoes
C-A :
The opportunity cost of producing an additional pair of
40 rolls sushi 33 rolls of Sushi
Y
= = 1 .
30 pairs shoes
Opportunity costs are reciprocals
, 8/27/25
Calculating Opportunity Costs Along a Bowed-out PPF
Books OCp =
opportunity cost of pizza
A
⑨ - B
A
:
a ---
OCp
:ices it book
B +
C
slice of =
3 books =
3 books
Pizza OCp 10 Slices
OCB opportunity
=
cost of 1 book
C +
B
OCB 10 Slices of pizza 3 33 Slices of pizza for
1
=
: = .
3 books each additional book
B =
10 Slices = 10 slises of pizza
OCB I book
When moving from BJA
,the opportunity cost of 1 book
is 10 Slices of pizza
Some observations
along a linear PPF, opportunity costs
·
are constant,
because all resources are equally suited to producing
both goods
·
along a bowed out PPF, opportunity costs are increasing ,
because not all resources are equally suited to producing
both goods
, 8/27/25
Absolute Advantage
·
A country or individual has an AA in making aparticular
good if it can produce more units of that good than
another country or individual
Comparative Advantage
A individual has
country or
producing a particular
CA in
·
a
good if it can produce that good as a lower opportunity
cost than another country or individual
·
Mexico Costa Rica
- E
produce
consume ~
O,
-----
S
produce
200
Avocado
i75
Avocados
OCA OCa
l ==
:
= S banana a 1 33 banana
.
OCc O
== 133 avocados
= is avocado
