Figure 12-4 Allocative Efficiency and the Production Possibilities
Boundary
Allocative Efficiency and the Production
Possibilities Boundary
Let’s now illustrate allocative efficiency in our economy with more than
one product. Figure 12-4 shows the production possibilities boundary
(PPB) for an economy that produces steel and wheat, and it also shows
the individual demand-and-supply diagrams for the perfectly competitive
wheat and steel markets. This figure is a little unusual, however, because
one of the demand-and-supply diagrams is turned on its side. We have
positioned the two market diagrams so that their output axes line up with
the appropriate output axes on the PPB diagram. In our example, this
positioning requires the demand-and-supply diagram for the steel market
to be turned on its side.