Productivity Possibilities Frontier - Coursework Example

Running head: Productivity possibilities frontier Student name: Student number: Course title: Lecturer: Date: The Production Possibilities Frontier framework is useful for illustrating and working with economic concepts. Scarcity, the situation where the resources are scarce and cannot satisfy the needs and the wants, is finitely portrayed by the PPF. The PPF will be used to point the instances where the production is expected to rise or to be at its optimal. The PPF normally consists of two points, the attainable point, which includes the curve itself and the region below it and the unattainable which includes the points above the PPF. Scarcity is concerned with the attainable and the unattainable. The attainable are to be found on the lower side and the curve itself and the unattainable which are the things which are found on top of the PPF. In the diagram below, points A-F are attainable while point G is unattainable. Opportunity cost and choice is also seen in the same figure. In the attainable region, the users must choose the combination of the goods they want to produce. There are many choices available in the figure. In an analysis of the figure, points A and points B will be analysised. One must choose only one point. No two points will be chosen. Opportunity cost illustrates that as we move from one region to another, there are some goods we will choose over others. If we are at point A and choose to move to point B, and there are 55000 television sets and 5000 cars in point A and point B has 50000 television sets and 15000 cars, in essence the opportunity cost will be 1 car is ½ television sets. The Production Possibilities Frontier has been effectively used to show the way two goods can be produced at their maximal combinations at any given time using fixed resources and technology and having the fullest use of available resources. The graphical representation of this economic measure is a concave which curves outside because one increase in a resource may lead to their fall because of the law of diminishing returns. An example is that if we require increased output from the human resource, there should be re-training of the staff which will mean that more financial resources will be allocated to this new move. There should be additional overhead to this. An example is that of a shop which is concerned with selling DVD players and MP3 players from a given constant stock of labor and cost. These two combinations are possible within the PPF but the problem is that there is underutilization of resources or where the resources are not used to their fullest potential. For those goods that lie along the PPF, they are feasible and they can be produced to their fullest potential. In the graph that is shown above, the combination that is shown in point E is not attained because the resources that are being used currently is not optimal enough (Baumol, & Blinder, 2008). Production Possibilities Frontier Shifts There are situations where the PPF will shift. One of these situations is when there is improved productivity and efficiency; this could be because there is new technology and new techniques of production introduced. Another reason for the shift in the PPF is when there is an increased workforce thus increasing the productivity output. This will increase the total effort that is applied to a particular task. There could also be a shift due to an increase in the capital. In the graph that follows the production of MP3 is affected due to introduction of new technology; this causes an outward shift in the PPF curve. In real life situation the cost of MP3 will be reduced because there is change in opportunity cost. With the same resources being allocated to the other commodity, DVDs, the same effect will be experienced in MP3. The PPF and economic efficiency An efficient production is the best combination that can be got from outputs using the same technology and resources. All along, individuals and organizations have been looking for the best way to combine the available technology and resources to get optimal output. Allocative efficiency is the point where it is possible to produce what people really want using the best combination of goods and services. For this to be achieved, there is need for the implementers and the drivers of the economy to be on the PPF because it is within here that that the output of the both the goods can be utilized to get an improved economic welfare. It is here that Pareto Efficiency is defined where it is not possible to make one group of consumers better off without affecting the output of the other consumers. A change in one consumer will definitely affect the other consumer. Caution has to be taken to ensure that the other consumers are not affected when there is change in another consumer or another sector of production. Another case is productive efficiency where production process does not come with any loss. The production of the two goods is taken to be efficient if the production of both goods lies within the PPF. The production is efficient for both goods (Sato, & Suzawa, 1983). If they lie inside the PPF, there will be underutilization of the resources and the technology that is available at that particular time. When the PPF shifts outward, the society is n now in a position to produce more given any resources. The opportunity cost will fall and the people will be in a position to produce more. When this happens, the resources will be overstretched and most of the time one good will be overstretched than other. In distributive efficiency, those who get the services are those who really wanted them. In most of these situations, the curve will have no effect on the goods that are being produced (McEachern, 2008). When the economy improves, which will lead to an outward shift in PPF, there will be a shift in the PPF and the economists are more concerned with the distributive gains that is supposed to be gained from this. The living standards are to be analyzed so that there is equitable distribution of the resources lest there be skewed distribution of wealth. Assumptions made There are trade-offs between the two goods when they are being compared. The trade-of is to be compared like the nature of the two goods; if one agricultural and non-agricultural good. The resources are the same for the goods. They should not be a superior good in the combination. One of the assumptions that will be made is that the opportunity cost will be the same and that the goods that are being compared will remain the same. There is ought to be an equal supply of the resources for both of the goods. Disparity of the resources will bring about biasness and will not present a balanced judgment for both of the goods. The combination of the two goods should be within a level platform. The second assumption is that of technology where the technology should be fixed. With the use of this fixed technology, the production of one good should not affect the production of the other technology (Cypher, & Dietz, 2008). The fourth assumption that will be made is the fact that it is not possible to produce more of one good without decreasing the production of the other good. The last assumption is the fact that there should be no additional resources being discovered in the process. The resources that are used in the combination process should be used to the end of the PPF combinations. Conclusion The PPF is very useful when getting to know where optimality will be got from in the combination of the goods that are being used. There should be optimality being achieved in the combination process of the PPF so that at all times the organization should be operating at their optimal level. In this paper, I have managed to look at the PPF combinations of the various goods and their optimal levels. References: McEachern, W 2008, Economics: A contemporary introduction, Cengage Learning, Michigan. Cypher, J & Dietz, J 2008, The process of economic development, Taylor & Francis, New York. Baumol, W & Blinder, A 2008, Economics: Principles and policy, Cengage Learning, Michigan. Sato, R & Suzawa, G 1983, Research and productivity: endogenous technical change, Michigan University, Michigan. Read More