Ppf Diagram Potential Growth. Production possibility frontiers ppf we normally draw a ppf as concave to the origin i e. Let us refer to diagram 3 and assume that the current ppf is at ppf1 and the economy is actually producing at point d this is known as the de facto output in the classroom setting you can think of a student performing at level c although he has the potential of obtaining level a ppf can shift from ppf1 to ppf2 through investment in human capital physical capital resource exploration.
However if you understand the intuition behind the economics of the ppf it is really just a graphical representation of what a country or individual is able to produce with a fixed amount of inputs. At point d the economy is inefficient. Ppfs are normally drawn as bulging upwards or outwards from the origin but they can be represented as bulging downward or linear depending on a number of assumptions.
It is a shift outwards in the ppf caused by an increase in the quantity quality or efficiency of use of the key factors of production.
It does not necessarily mean that the gdp has risen whether the potential is actually used will depend on changes in demand in the. Potential growth means growth in the actual potential in the economy. But the opportunity cost is that output of goods falls from 22 to 18. It is a shift outwards in the ppf caused by an increase in the quantity quality or efficiency of use of the key factors of production.
