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The Production Possibilities Frontier

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The Production Possibilities Frontier
The Production Possibilities Frontier
One of the central principles of economics is that everyone faces tradeoffs because resources are limited. These tradeoffs are present both in individual choice and in the production decisions of entire economies. The production possibilities frontier (PPF, also sometimes called a production possibilities curve) is a simple way to show these production tradeoffs graphically.

Since graphs are two-dimensional, economists make the simplifying assumption that the economy can only produce two different goods. Traditionally, economists use guns and butter as the two goods when describing an economy's production options, since guns represent a general category of capital goods and butter represents a general category of consumer goods. (The tradeoff in production can then be framed as a choice between capital and consumer goods, which will become relevant later.) Therefore, we adopt guns and butter as the axes for our production possibilities frontier.

Technically speaking, the units on the axes could be something like pounds of butter and number of guns.

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