**two Goods,**it can

**produce cars**it could produce trucks or could produce a combination of the two right so Japan has to decide well how many cars and trucks do we want to produce? Let’s say that Japan produced

**zero trucks**, so trucks are on the x-axis so zero trucks would be right here.

**50 million**cars so basically, this is saying if Japan focuses simply on producing cars and just completely said “Forget about trucks we’re not going to produce trucks, just cars”, Then Japan will be able to produce

**50 million**cars. Now you might say why can’t they produce 60 million? Why can’t they produce 70 million? Because Japan is given its level of current resources, right? Japan only has access to so much

**steel**to so much

**rubber**that they can only produce a limited amount of products, remember when we talked about scarcity? So resources are limited so it’s basically saying look if Japan just strictly focused on making cars the max that they could produce is

**50 million**cars.

**combinations.**Basically, all the points along this curve are different combinations of cars and trucks that Japan could produce.

**40 million trucks**. So hypothetically this combination here would correspond to 40 million cars and 40 million trucks instead of fifty million cars and zero trucks. That’s right here.

**forty million cars**and

**forty million trucks**. So they call this first combination (A) and then the second one is (B). So to go from point

**A**to point

**B**what are they giving up? Well, they’re giving up

**ten million cars**because they’re going from

**fifty million**to

**forty million**in Y-axis. They’re gonna have ten million fewer cars, that they’re going to produce. that’s the difference right here

But what are they getting in **exchange**? They’re getting forty million trucks. That’s the **marginal cost** of going from A to B the marginal cost would be ten million cars. So ten million cars would get you 40 million trucks So you can think about that in terms of **marginal cost** or the **opportunity cost** remember when we talked about an **opportunity cost**? The opportunity cost of going from point A let’s say to point B is that we’re giving up 10 million cars but we’re getting 40 million trucks.

**efficient in production**and we’re gonna talk about all this more in future articles but we say if these points are efficient that means that at any of those points along the curve, Japan could not produce an additional unit of either a car or a truck without giving up one of the other. At point B for example, when I got 40 million cars 40 million trucks they could not produce 41 million cars in 40 million trucks if they wanted to go to 41 million cars they would have to decrease their production of trucks.

**50 million.**It could not do that or it’s just not able to do it. So basically you think about the term of opportunity cost or and then we can think about the marginal cost. A marginal cost as we go along this curve will be decreasing or increasing and when I say that the marginal cost is increasing what I mean is that from 50 million to 40 million we give up

**10 million**

**cars**but we get

**40 million trucks**now let’s say we want to go to

**50 million trucks**now we get where we have to give up 40 million cars right so we give up 10 million cars to get 40 million trucks.

**40 million cars.**So we say that the

**marginal cost is increasing**and that’s why we have the

**bowed-out**shape of the PPF.

**straight-line**that basically saying that there is

**no increasing marginal cost**the marginal cost is constant and that’s possible but usually it’s the case where it’s bowed-out like this because we say that you know as you produce more and more of one good, as we produce more and more trucks it’s like the equipment that we have to produce trucks some of the equipment that we have was better for you producing cars and we start repurposing that to produce trucks and it gets more and more difficult.

**not feasible**, not feasible means that the current level of resources we cannot get to any of these points.

We can’t no matter what we do even if we decrease our truck production to zero we cannot produce** 51 million cars**. It’s not possible at this point and then the points along the curve are efficient as we discussed. Now the points inside the curve are** inefficient** that means that we’re either **wasting resources** or **we’re misallocating resources.**

**30 million cars**and

**40 million trucks.**Now this point, when we say it’s inefficient what it means is that we are at

**30 million cars**&

**40 million trucks**we already know what’s possible with our level of resources to produce

**40 million**cars and

**40 million trucks,**right? At

**point B**so we can produce

**40 million**of each so why would we produce 30 million of the 1 of cars? We could increase without giving up anything else. Without giving up anything any additional trucks we could produce an extra

**10 million**cars. We could go from

**inefficient point**to

**point B**without giving up any trucks. Why wouldn’t we be doing that?

**wasting resources**maybe we’re

**not using all the labor**and

**capital**that we have available to us. Now let’s say there was a new technology that allowed it to make it easier to make trucks, then the curve might look something like expanded outward, and now maybe instead of producing the max 50 million trucks maybe it’s

**80 million**. Then also when we engage in trade that allows us to consume actually outside at a point that’s

**not feasible**and we’re gonna talk about all of this more in the articles to come I just want to give you a general overview of the PPF.