The slope between points B and B is 2 pairs of skis/snowboard. Hong Kong, with its huge population and tiny endowment of land, allocates virtually none of its land to agricultural use; that option would be too costly. In particular, its slope gives the opportunity cost of producing one more unit of the good in the x-axis in terms of the other good (in the y-axis). What determines how far a PPF is from the origin. This is a result of transferring resources from the production of one good to another according to comparative advantage. The plant with the lowest opportunity cost of producing snowboards is Plant 3; its slope of 0.5 means that Ms. Ryder must give up half a pair of skis in that plant to produce an additional snowboard. Conversely, the opportunity cost of sugar cane is lower in Brazil. In our simple example above, there were two different resources: doctors and teachers, and each resource is better at one job than at the other. then you must include on every digital page view the following attribution: Use the information below to generate a citation. If Alpine Sports selects point C in Figure 2.9 Efficient Versus Inefficient Production, for example, it will assign Plant 1 exclusively to ski production and Plants 2 and 3 exclusively to snowboard production. The economy produces SA units of security and OA units of all other goods and services per period. Here they are, the 100 best restaurants in New York City, ranked. The PPF captures the concepts of scarcity, choice, and tradeoffs. Production of all other goods and services falls by OA OB units per period. Suppose a manufacturing firm is equipped to produce radios or calculators. Because the PPF is downward sloping from left to right, the only way society can obtain more education is by giving up some healthcare. The gains we achieve through specialization are enormous. Suppose that, as before, Alpine Sports has been producing only skis. If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked. . She also modified the first plant so that it could produce both snowboards and skis. Most importantly, the production possibilities frontier clearly shows the tradeoff between healthcare and education. Christie Ryder began the business 15 years ago with a single ski production facility near Killington ski resort in central Vermont. . Whats the difference between a budget constraint and a PPF? Production had plummeted by almost 30%. The U.S. PPF is flatter than the Brazil PPF implying that the opportunity cost of wheat in term of sugar cane is lower in the U.S. than in Brazil. The following graph illustrates these ideas using a production possibilities frontier between healthcare and education. The Production Possibilities Frontier (PPF) is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. The opportunity cost of an additional snowboard at each plant equals the absolute values of these slopes. Further, the economy must make full use of its factors of production if it is to produce the goods and services it is capable of producing. These intercepts tell us the maximum number of pairs of skis each plant can produce. The curve is a downward-sloping straight line, indicating that there is a linear, negative relationship between the production of the two goods. The budget constraints that we presented earlier in this chapter, showing individual choices about what quantities of goods to consume, were all straight lines. In the production possibilities framework, economic growth is depicted by the PPF Producing more snowboards requires shifting resources out of ski production and thus producing fewer skis.