Introduction of Micro-Economics — Economics STD 11 Commerce — Question

The production possibility frontier (PPF) refers to a curve that shows the various combinations of two goods that an economy can produce with the available technology and given resources which are fully and efficiently employed. It is also called production possibility frontier because it shows the limit of what is possible to produce with present resources.Assumptions:

1. Productive resources are given in an economy.
2. All the resources are fully employed and efficiently utilised.
3. Techniques of production are given and do not change.
4. The resources are not equally efficient in production of all products.

All the points lying on the PPC, that is curve AE, are associated with different quantities of good 1 and good 2 produced, by employing the available resources fully and in an efficient manner. While any point lying under the curve, like F, depicts inefficiency or under utilisation of available resources. Whereas any point lying outside the curve, like Z, depicts over utilisation of the available endowment of resources and technology; making it non-feasible.
This graph shows as we increase the production of Good 1, the production of Good 2 falls as there are limited resources in the economy. It means resources are transferred to the production of Good 1 by withdrawing them from Good 2 i.e., one commodity is transformed into the other, not physically but by transferring resources. Therefore, it is also called 'transformation curve'.