I.

Introduction
The Production Possibility Frontier (PPF) illustrates two products’ possible quantities
when they depend on the same resource for production. PPF plays an important role in
economics since it is one way of determining if an economy is growing or shrinking.

II. Body
a. PPF and Economic growth
The PPF shows how tradeoffs, choice, and scarcity are considered while making
economic decisions through a graph.

Economic growth is the expansion of the PPF. This is shown by an outward shift of
the while an inward shift indicates a shrinking economy due to the failure of resource
allocation and optimal production capability.

Example of a PPF (Taken from:

https://www.khanacademy.org/economics-finance-domain/microeconomics/basic-
economic-concepts-gen-micro/production-possibilities/a/the-production-possibilities-
frontier-and-social-choices-cnx-2)

b. Factors contributing to PPF expansion

There are two main factors that contribute to PPF expansion.

1. Growth of productive inputs

There are two ways productive inputs can grow: through changes in
human resources and in physical capital. Labor force growth, investment in
 human capital through education and training, and immigration could increase
both the quality and quantity of the labor force.

Capital accumulation/investment, construction, and imports of capital

goods increase the quality and quantity of physical capital. The growth of
these two types of inputs enhances the productive capacity of the economy
and leads to PPF expansion.

2. Technical Change

Technical change is the change in the quality of productive inputs in

both human and physical resources. Increasing the quality of human resources
can be done through advanced education and research and development.

Inventions and innovations in technology could increase efficiency,

productivity, and the quality of physical resources, which could lead to PPF
expansion

There are also different technical changes that affect the expansion of
the PPF, depending on the proportions of labor and capital productivity. These
include…

- Neutral technical change – increase in labor productivity = increase

in capital productivity (The economy can produce more output of
both without sacrificing anything)
- Labor saving technical change – increase in labor productivity <
increase in capital productivity (The economy is more capital-
intensive and has lesser labor productivity)
- Capital saving technical change – increase in labor productivity >
increase in capital productivity (The economy is more labor-
intensive and has lesser capital productivity)
III. Conclusion
The PPF is a valuable tool that showcases possible production quantities of two
products using limited resources. It helps analyze factors like efficiency and scarcity, helping
businesses in producing and economists in assessing economic efficiency and growth.