Production Possibility Frontier – A Problem of Choosing Among Alternatives

Just as individuals face shortage of resources, the resources of an economy as a whole are always inadequate in contrast to what the people in the economy collectively want to have. The scarce resources have alternative usages and every society has to decide on how much of each of the resources to use in the production of different goods and services.

In other words, every society has to determine how to allocate its scarce resources to different goods and services.

An allocation of the scarce resource of the economy gives rise to a particular combination of different goods and services. Given the total amount of resources, it is possible to allocate the resources in many different ways and, thereby achieving different mixes of all possible goods and services. The collection of all possible combination’s of the goods and services that can be produced from a given amount of resources and a given stock of technological knowledge is called the production possibility set of the economy.

For example if you have 12 dollars and suppose the price of 1 burger is 2 dollars and 1 pizza is 3 dollars so with those 12 dollars either you can buy 6 burger or 4 pizza or 2 burger and 3 pizza and many such combination are possible. In the same way every economy has to choose one of the many possibilities that it has. In other words, one of the central problems of the economy is to choose from one of the many production possibilities and hence every economy tries to use those combination’s which give rise to maximum benefit for the society, just like individual try to maximize the resources it has.

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