Here we shall illustrate how two goods would be produced using the available scarce resources.
- For simplicity assume that a country has same resources to enable her produce only two goods, namely beans and maize. If all resources are used to produce beans, OA units will be realized worth zero (0) units of maize. On the other hand, if all resources are used to produce maize, OB units will be produced with zero (0) units of beans. Thus the line joining point A and B is the production possibility frontier (PPF) or curve. The frontier joins together different combinations of goods (beans and maize) which a country can produce using all available resources and efficiently.
- All points inside PPF like M are attainable though they reflect under utilization or inefficiency in the use of resources.
- All points outside PPF like N are unattainable because resources are scarce.
- Thus points along AB are attainable and reflect efficient production.
- Suppose initially production was at point A, then only beans would be produced, to produce OB, units of maize would thus require OA units of beans be sacrificed. Quantity OA, units of beans which has to be forgone to produce OB units of maize is the opportunity cost of producing the maize. Sacrificing of production of one good for the other is as a result of scarcity of resources.
Wilfykil answered the question on
March 6, 2019 at 05:33