The Consumption Possibilities Frontier (CPF) represents the different combinations of goods and services that a consumer can purchase given their income and the prices of those goods and services. It illustrates the trade-offs that a consumer faces when making decisions about how to allocate their resources.
Basically, the CPF is a graphical representation of the maximum feasible quantity of two goods that can be consumed, assuming that the entire income is spent efficiently. Points on the frontier indicate the maximum possible combination of the two goods, while points inside the frontier show combinations that are achievable but not utilizing all available resources. Points outside the frontier are unattainable given the consumer’s income and prices.
For example, if a person has a fixed budget to spend on food and clothing, the CPF can help visualize how many items of each they can buy. If they decide to buy more food, they may need to purchase less clothing, illustrating the opportunity cost of their choices.