Have you been to a frontier lately? Whether you realize it or not, the economy has a frontier—it has an outer limit of economic production. In the eighth episode of the Economic Lowdown Video Series, economic education specialist Scott Wolla explains how the production possibilities frontier (PPF) illustrates some very important economic concepts.
• Segment 1: The PPF Illustrates Scarcity and Opportunity Cost
This segment uses the fictional economy of Econ Isle to discuss how limited resources result in a scarcity problem for the economy. Econ Isle’s production possibilities are graphed to show its frontier, and then used to discuss the opportunity costs of its production and consumption decisions.
• Segment 2: The PPF Illustrates Underemployment, Economic Expansion, and Economic Growth
This segment uses the production possibilities frontier to explain key economic ideas such as why an economy might have underemployed resources but later expand, and how changes in productivity can lead to economic growth.
• Segment 3: The PPF Illustrates the Law of Increasing Opportunity Cost
The final segment uses the production possibilities frontier to demonstrate how, in the real world, opportunity cost increases as production increases. This is a difficult concept made simple using the PPF.