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Production Possibility Frontier (ppf)
Inefficiency and the ppf

What happens if society is not using its resources efficiently? Perhaps in growing food, farmers apply fertilizer ineffectively, with much of it getting washed away when fields are irrigated, and too much space is left between rows of crops. If a society changed its growing methods and used land and fertilizer more effectively, it could produce more corn and wheat. This is illustrated in the Figure 2.4.

Notice that when society is within the ppf, a reallocation of resources can yield an increase in both goods illustrated. Thus, any point within the frontier means that resources are being used inefficiently. In addition, points within the ppf may also represent periods of unemployment. A society is not producing to its fullest potential when lots of potentially productive workers are unemployed. When unemployment declines and more workers are engaged in producing goods and services, society can get a greater output of all goods.

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REALITY CHECK: The production possibility analysis may seem irrelevant to you because it is expressed as a choice between two goods like corn and wheat. But it is a tool that can also be used to discuss other choices, such as that between saving money and spending it. If instead of buying a new pair of athletic shoes, you saved the money (put it in a savings account at, for example, 3% interest), how much money would you have in 5 years? 10 years?



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