past and cannot be recovered, they should be disregarded in making current decisions.

2.2 The Production Possibilities Frontier and Social Choices

A production possibilities frontier defines the set of choices society faces for the combinations of goods and

services it can produce given the resources and the technology that are available. The shape of the PPF is

typically curved outward, rather than straight. Choices outside the PPF are unattainable and choices inside the
44 2 • Self-Check Questions

PPF are wasteful. Over time, a growing economy will tend to shift the PPF outwards.

The law of diminishing returns holds that as increments of additional resources are devoted to producing

something, the marginal increase in output will become increasingly smaller. All choices along a production

possibilities frontier display productive efficiency; that is, it is impossible to use society’s resources to produce
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