Productive Efficiency and In Efficiency of a Production Possibility Frontier

1425 Words3 Pages
bulb-icon

Recommended: EFFECT of market failure in an economy

Productive Efficiency and In Efficiency of a Production Possibility Frontier (PPF) Introduction The production possibility frontier is also known as the (PPF) in the economics world. It is simply a graph or diagram that does clearly show the production rate of two goods and/or services that an economy does produce efficiently or inefficiently over a given period of time. It accurately shows the production levels of the maximum to the minimum amounts produced in a uniformly drawn curve. This is usually compared to another curve that shows shifts either above or below the original one. This second curve clearly shows the production efficiency or inefficiency under given factors which either favor for or against the production levels of a given economy (Thompson 1985). Identifiable major points are drawn on the graph using two major factors while holding others constant and then a curve is drawn using several points on the graph (major points). Minor points that are usually within this curve are usually considered to be reachable but not efficient (Christensen, Jorgenson & Lau 1973). Statement Although most curves are drawn being concave like, that is bulging outwards from the starting point; the PPFs can be at times represented as straight lines or convex like shaped, which are bulging inwards from the origin of the graph or diagram. This depends on the amount of factors under consideration. PPFs which are also known as the production possibility curve or product transformation curve are used to represent several aspects like, resource scarcity , real costs of forgone alternatives (opportunity costs), economies of scale and even the efficiency of a given production in an economy. Basically an outward shift of the PPFs curve is ... ... middle of paper ... ...ll ensure general growth rate of given economy. It also shows the different opinions held by an individual or organization in a two-good model. By definition, all the curves have an efficient production, but depending on the nature of the market some will be more productive than others. The given equilibrium of an economy given PPF will be the combination of the given outputs that is most profitable. It basically shows the production possibilities in that economy over a given period of time. Factors such as market failure can at times arise, these may be due to imperfect competition or other externalities’ not taken into account. These can lead to wrong grouping of goods being produced hence wrong mixing and allocation of needed resources. These can be different to what the consumer really given what is consumable on the given production possibility frontier (PPF).

Show More
Related

  • Sustainability Essay

    803 Words  | 2 Pages

    The measure of growth is flawed, how countries see their growth is based on the consumption of their people. Many countries use the GDP (Gross Domestic Product) as an indicator for growth, as defined in It’s All Connected, “(GDP) is a calculation of the total monetary value of goods and services produced annually in a country” (Wheeler 11). The...

    Read More

  • Endogenous Growth Theory Case Study

    1340 Words  | 3 Pages

    To begin many theories hold a number of assumptions about the markets, but neoclassical takes this to an extreme. NGT assumes that there is full employment, no externalities or transportation costs and perfect competition just to name a few from the slew of others. This large amount of assumption is one reason why Romer established EGT in his 1986 dissertation (Fine) . These assumption are numerous and rather important in an economy and to assume all of these things it starts to take away from its real world application. Endogenous growth theory seeks to explain many of the assumptions that NGT hold constant. One such assumption is that technology is a constant and steady

    Read More

  • Adam Smith

    852 Words  | 2 Pages

    In the equation above it the product of K and P that is responsible for economic growth. It would appear then that K, the ratio of productive to unproductive labor, and P, the productivity rate are equally important factors in this determinance. However, Smith says that this is not so. The ratio of productive to unproductive labor does not change much over time, says Smith.

    Read More

  • Why Are Some Countries Richer Than Others?

    1486 Words  | 3 Pages

    Every year there is a ‘league table‘ published showing the level of economic growth achieved by each country. The comparison is made using each countries Gross Domestic Product, or GDP. An important factor to look at is the difference between actual and potential economic growth. Actual economic growth increases in real GDP. This increase can occur as result of using previously unemployed resources, or reallocating resources into more productive areas or improving existing resources. Whereas potential economic growth is the productive capacity of the economy. For example, it can be shown by the predicted ability of the country to produce goods and services. This changes when there is an increase in the quantity or quality of the resources. All countries have different ways of achieving this with the resources they have available to them. For this reason it party answers the question of why some countries are richer than others. It is widely thought that the productive capacity of an economy will increase each year largely due to improvements in education and technology. This will obviously differ from country to country. For example, in the UK the quality of fertilizer could be improved, hence forth increase the years fruit and vegetable output.

    Read More

  • Taylorism and Work Place Efficiency

    1844 Words  | 4 Pages

    Taylorism is a system that was designed in the late 19th century, not only to maximise managerial control, but to also expand the levels of efficiency throughout workplaces. With this being said, productivity levels increased and fair wage distribution was the main result. However, with other, more recent theories and systems, such as Maslow and Herzburg’s theories, these helped to focus on the satisfaction and motivation of the workers rather than the concern of managerial control and empowerment. Fredrick W. Taylor ended up developing 4 main principles to help increase the work efficiency and productivity in workplaces; these will be discussed later on. Other theories relating to this include, Fayol, Follett, Management Science Theory as well as Organisational-Environmental Theory. All theories listed have an influence on the way businesses work effectively and put their skills to action. This essay will highlight how Taylorism was designed to maximise managerial control and increase productivity, furthermore, showing how more recent theories were developed to focus on empowering employees and to extend the use of organisational resources.

    Read More

  • Monetary Policy

    1670 Words  | 4 Pages

    The Economy is the backbone to society. There are many factors that operate in, and govern our society’s economical structure. Factors such as scarcity and choice, opportunity cost, marginal analysis, microeconomics, macroeconomics, factors of production, production possibilities, law of increasing opportunity cost, economic systems, circular flow model, money, and economic costs and profits all contribute to what is known as the economy. These properties as well as a few others, work together to influence the economy. Microeconomics and Macroeconomics are two major components. Both of these are broken down into several different components that dictate societal norms and views.

    Read More

  • Marginal Analysis Essay

    716 Words  | 2 Pages

    “Marginal analysis involves changing the value(s) of the choice variable(s) by a small amount to see if the objective function can be further increased (in the case of maximization problems) or further decreased (in the case of minimization problems)” (Thomas & Maurice, 2012, pp. 91). Marginal analysis is known as “the central organizing principle of economic theory” for its importance and applicability to many aspects of our daily lives as well as our careers (Thomas & Maurice, 2012, pp. 94). The key concepts of marginal analysis include total benefit, total cost, marginal benefit, marginal cost and net benefit. These concepts all come together to play a significant role in the use of marginal analysis to reach the optimal desired outcome.

    Read More

  • The Solow Growth Model with one Endogenous Growth Model

    1511 Words  | 4 Pages

    For instance, given a fixed level of capital and labour, output will only grow if there is technical progress, that is the value of technological change, A, changes. Because technology is introduced into the function as multiplying L, it is known as labour augmenting or Harrod neutral. This is distinct from capital augmenting: Y(t) = F[A(t)K(t),L(t)] and Hicks Neutral: AY(t) = F[K(t),L(t)]. Some assumptions are made concerning this function.

    Read More

  • Inflation in the UK Economy

    2610 Words  | 6 Pages

    This is where the total demand for goods and services in the economy exceeds the total supply. This happens after excessive growth in aggregate demand, and creates an inflationary gap. Excess demand in the economy drives up prices, and high prices mean that Suppliers want to produce more units of their product in order to make more money. To supply more, they must increase their production capacity, and the easiest way to do this in the short run is to increase the amount of labour they employ. This means that they are paying more wages, so people will have more disposable income, and hence there is more demand in the economy.

    Read More

  • Economy: The Law of Supply and Demand

    998 Words  | 2 Pages

    ... quantity of helium supplied has also decreased due to refinery closures and privatization which this is a determinant of supply known as “decreasing number of sellers”, which will cause a rise in the prices of helium. As the number of sellers in this particular market decreases, our supply of helium decreases as well shifting the supply curve. Also, we have a change in a non-price determinant of supply such as the cost of factor production, which equals to a change in supply. This change in supply shifts the supply curve to the left because helium is becoming more difficult to find and the cost of natural resources has increased causing a decrease in the helium supply.

    Read More

  • Supply And Demand

    1824 Words  | 4 Pages

    The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.

    Read More

  • Technological Change: Boosting Economy, Igniting Structural Unemployment

    744 Words  | 2 Pages

    Rittenberg, L. and Tregarthen, T. (2012). Macroeconomics Principles V. 2.0. Licensed under Creative Commons by-nc-sa 3.0 (https://creativecommons.org/licenses/by-nc-sa/3.0/)

    Read More

  • Essay On Factors Of Production

    815 Words  | 2 Pages

    In conclusion, as a country works towards shifting the production possibility frontier outwards, the economy benefits by the fact that more jobs are being created as more products are being supplied. With the improvement of technology countries can exploit their resources more efficiently which causes more production, with more production come more sales and with more sales or exports there might eventually be an increase in economic growth.

    Read More

  • Production Possibility Frontier Case Study

    1019 Words  | 3 Pages

    Products requiring similar resources (bread and pastry, for instance) will have an almost straight PPF and so almost constant opportunity costs. More specifically, with constant returns to scale, there are two opportunities for a linear PPF: if there was only one factor of production to consider or if the factor intensity ratios in the two sectors were constant at all points on the production-possibilities curve. With varying returns to scale, however, it may not be entirely linear in either

    Read More

  • Classical Theory Of Income And Employment Case Study

    929 Words  | 2 Pages

    Consider Fig. 3.1 where MP curve depicts the diminishing marginal product of labour with a given stock of fixed capital and a given state of technology. As explained just above, marginal product (MP) curve of labour also represents the demand curve of labour (Nd).

    Read More

More about Productive Efficiency and In Efficiency of a Production Possibility Frontier

Open Document