The Production Possibilities Frontier
ID:CVPPF

Video Overview

The optimal use of resources and the best distribution thereof makes for economic efficiency. Efficiency is a relative term and is determined by value. A change that increases value is an efficient change and any change that decreases value is an inefficient change. However, value can only be determined if someone wants the goods or services. Once that condition has been met, then it becomes important to ascertain if the value was maximised. Economists find it necessary to assess value when making policy recommendations. A clear under-standing of value will enable an economist to predict, for example, whether a specified policy will or will not achieve the goals set for it. Economists often want to do more. They want to compare two policies or two situations and decide which one is better. To decide which one is better requires some sort of basis for ranking situations, i.e. which one will give more or better value. Therefore, this tutorial looks at the production possibilities frontier, a useful tool in this regard.