Which of the following describes a Production Possibility Frontier?

• A. A market where households buy the goods and services
• B. The quantity of money in the economy
• C. A graph showing the maximum attainable combinations of two products that may be produced with the available resources
• D. A measure of inflation

Answer: (C)

A Production Possibility Frontier is a graph that shows the maximum combinations of two goods that can be produced with the resources and technology available. It highlights scarcity and the trade-offs the economy faces, because producing more of one good means producing less of the other. Points on the frontier are efficient, using all resources; points inside show underutilized resources; points outside are unattainable with current resources. The two goods could be anything like food and clothing, or cars and computers, with each axis representing how much of each good is produced. The frontier often bows outward because the opportunity cost of shifting resources from one good to the other usually rises as more of one good is produced. In short, the description describes a graph of the maximum attainable combinations of two products that may be produced with the available resources.

Other descriptions refer to a market, the money supply, or inflation, which are different concepts and do not depict production possibilities.