How does the production possibilities frontier illustrate scarcity? The unattainable combinations of production that lie beyond the PPF illustrate the concept of scarcity. There simply are not enough resources to produce any of these combinations of outputs.

A production possibilities curve shows the combinations of two goods an economy is capable of producing. The downward slope of the production possibilities curve is an implication of scarcity. The bowed-out shape of the production possibilities curve results from allocating resources based on comparative advantage.

The slope of the PPF indicates the opportunity cost of producing one good versus the other good, and the opportunity cost can be compared to the opportunity costs of another producer to determine comparative advantage.

The production possibilities curve illustrates the maximum possible output for two products when there are limited resources. It also illustrates the opportunity cost of making decisions about allocating resources.

In economics, factors of production are the resources people use to produce goods and services; they are the building blocks of the economy. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.

Opportunity Cost in the PPF Model. Recall that opportunity cost is defined to equal the value of the next best alternative whenever a choice is made. Given scarcity, the PPF model demonstrates that choices must be made between the production of the two different goods, guns and butter, measured on the axes.

All choices along a PPF display productive efficiency—it is impossible to use society's resources to produce more of one good without decreasing production of the other good. The specific choice along a PPF that reflects the mix of goods society most desires is the choice with allocative efficiency.