In this video, I'm going to introduce you to an economic model called the production possibilities frontier. So here we have a graph with the production possibilities frontier on it. We're going to call it PPF for short. Some books call it the PPC, but I'm going to use PPF throughout these videos. So the PPF is a graph showing the combinations of output an economy can produce with the available resources, right? So this is about what kind of mix of products we can produce with what we have, alright?

We're going to make some assumptions when we deal with this graph. We've got two goods; these are going to be the production outputs of our society. In this example, we've got the economy of Clutchtopia here creating both thin-crust pizzas and robots. That is what we produce in Clutchtopia: thin-crust pizza and robots. We're going to assume we've got a fixed amount of resources, right? This involves scarcity; we don't have unlimited resources, we have a fixed amount, and for our example, it's not going to grow or shrink. We've got a certain amount of resources, a certain amount of labor, a certain amount of land, human capital, right? So it's a certain amount of the inputs into the process. And our last assumption is that we've got fixed technology as well. Okay? So nothing's going to be changing in this society. That's the idea. Alright.

So let's go to the graph. We've got Clutchtopia, producing thin-crust pizzas and robots. So along this line is what we call the PPF. This blue line on the graph, that is Clutchtopia's production possibilities frontier, and when we look at this graph, we're going to look at a couple of key points here. So if we look at the point way up here on the graph where we're producing 10,000 robots up there, right? We've got 10,000 robots but no pizza. So in Clutchtopia, if we put all our efforts into robot production, we could have 10,000 robots. Now let's say Clutchtopia put all their efforts into pizza production; for thin crust pizzas, we could produce 4,000,000 pizzas, but 0 robots if we were at this point down here on the graph, but we can also produce some mix of the two. Right? We can have some robots and some pizza. But we know that if we have 4,000,000 pizzas, we're not going to be able to have any robots. Right? So 4,000,000 is the maximum amount of pizzas with no robots, but let's say we're at a point like right here. Right? We can have a mix of, say, 3,000,000 pizzas and 4,000 robots there, right? So anywhere along that line is still part of the mix we can attain. Right?

We've got two things to think about. We've got attainability, right? Is it attainable or unattainable, this level of production? So what we're going to say is that anywhere inside and on the line is attainable. It's a mix of production that we can attain. Right? So what I'm saying here is yes, we could be on the line here at 3,000,000 pizzas and 4,000 robots, but it's entirely possible that we could be at this point right here in blue where we're producing 1,000,000 pizzas and 2,000 robots. Right? That is still an attainable amount of production. Compare that to an unattainable amount. So I'm going to write "attainable" here inside of yellow. Attainable. And for unattainable, I'm going to use this light blue. So, anything out here, outside the graph, right, anything outside the graph is going to be unattainable. It's an amount of production that we cannot achieve with our current resources, our current technology. Right?

So, let me show you an example here. If I were to put a point out here, say, at this point, in blue, now we're saying we want 3,000,000 pizzas and 7,000 robots, and that's just unattainable because it's outside of the curve. So outside of the curve of the PPF, we are going to call it unattainable. Okay. So inside is attainable, outside is unattainable, and one more thing I want to talk to you about real quick is productive efficiency and allocative efficiency. So we call something productively efficient if you'll scroll down a little bit, we've got here productive efficiency is producing at any point on the PPF. Any point on the PPF is productively efficient. That means we are getting the most we can with our current situation, right? So we're saying we're efficient if we're anywhere along the curve. So this point right here, if we go back to the curve, I'm going to start putting some points in black. All these points are productively efficient anywhere here along the graph, right. That's all productively efficient on the graph. Okay. And allocative efficiency, if you see right there below productive efficiency, that's just a little more subjective. This is about whether you're producing the correct mix based on consumer preferences. So that's the idea, do the consumers of Clutchtopia want 3,000,000 pizzas, or do they want 1,000,000 pizzas? It all depends on the consumer choices, and that's the allocative efficiency that you see, but on the graph, it's easy to tell if you're being productively efficient. Productive efficiency is reached by being on the graph. Cool? So let's continue, and we'll do a practice.