Under the field of macroeconomics, the production possibility frontier (PPF)
represents the point at which an economy is most efficiently producing its goods
and services and, therefore, allocating its resources in the best way possible. If
the economy is not producing the quantities indicated by the PPF, resources are
being managed inefficiently and the production of society will dwindle.
The production possibility frontier shows there are limits to production, so an
economy, to achieve efficiency, must decide what combination of goods and
services can be produced.
Let's turn to the chart below. Imagine an economy that can produce only wine
and cotton. According to the PPF, points A, B and C - all appearing on the curve
- represent the most efficient use of resources by the economy. Point X
represents an inefficient use of resources, while point Y represents the goals that
the economy cannot attain with its present levels of resources.
