Combinations of output of goods X and Y lying inside the PPF occur when there are unemployed resources or when the economy uses resources inefficiently. In the diagram above, point X is an example of this. We could increase total output by moving towards the production possibility frontier and reaching any of points C, A or B.
In this scenario point D is impossible to achieve since it outside the PPF. There is a way to achieve point D, if the economy has an increase in factor resources, or an increase in the efficiency of factor resources or an improvement in technology. Then the point D will be attainable.
Opportunity cost can be thought of in terms of how decisions to increase the production of an extra, marginal, unit of one good leads to a decrease in the production of another good. In other words we gain an extra good/service in sacrifice for the other good/service.
According to economic theory, successive increases in the production of one good will lead to an increasing sacrifice in terms of a reduction in the other good.
The PPF does not always have to be drawn as a curve. If the opportunity cost for producing two products is constant, then we draw the PPF as a straight line. The gradient of that line is a way of measuring the opportunity cost between two goods.
The production possibility frontier will not always stay the same. It will shift when there are improvements in productivity and efficiency perhaps because of the introduction of new technology or advances in the techniques of production). If the PPF shifts outwards, we know there is growth in an economy. Alternatively, when the PPF shifts inwards it…