A simple model of an economy that shows all the possible combinations of two goods that can be produced with current resources and technology is called what?

• A. Capital
• B. Production Possibilities Frontier (PPF)
• C. Economic Equity
• D. Traditional Economy

Answer: (B)

A simple model that shows all the possible combinations of two goods that can be produced with current resources and technology is the Production Possibilities Frontier. The PPF maps the maximum amounts of two goods you can produce given the resources and tech you have. Points on the frontier represent efficient production where resources are fully used; points inside the frontier show inefficiency or underutilized resources; points outside are unattainable with current resources. The slope of the frontier captures the trade-off between the two goods—the opportunity cost of making more of one good in terms of the other. Typically the PPF is bowed outward because resources are better suited to some goods than others, so producing more of one good costs increasingly more of the other. Other terms don’t describe this boundary: capital is an input factor, economic equity deals with fairness of distribution, and a traditional economy is a system based on customs, not a production possibilities frontier.