Production possibility set
Topic: Scarcity, Choice and Economic Systems · NCERT: Class 12, Ch 1 "Introduction (Microeconomics)"
Meaning
The production possibility set is the collection of all combinations of goods and services that can be produced from a given amount of resources and a given stock of technology. It includes every combination the economy can make, whether or not all resources are fully used. Its outer edge is the production possibility frontier (PPF), which shows the maximum of one good for each amount of the other.
Example
Using the NCERT corn–cotton schedule, an economy can produce 1 unit of corn and 9 of cotton, or 2 corn and 7 cotton, when resources are fully used. It can also produce 1 corn and 5 cotton if some resources lie idle. All these combinations belong to the production possibility set. Only the full-use ones lie on the frontier.
Don't confuse with
- Production possibility frontier: the frontier contains only the combinations with full and efficient use of resources, the outer boundary. The set also includes all points inside it.
Related concepts
- Production possibility frontier
- Allocation of resources
- Efficient use of resources
- Underutilisation of resources