A PPF shows the maximum combination of two goods that an economy can produce given the resources available.
PPFs are downwards sloping because gain in one good means sacrifice of another.
If the line is straight, the assumption has been made that the F.O.P.S are homogenous and the law of diminishing returns does not apply. A bowed curve is more realistic.
The law of diminishing returns: where increasing amounts of a variable factor are added to a fixed factor and the amount added to total product by each additional unit of the variable factor eventually decreases.
Features of the fundamental economic problem include under-use, full use, trade-offs, conflicting objectives and opportunity cost.
Opportunity cost – the benefit that would have been derived from the next best alternative forgone.
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