Determination of Equilibrium Prices:
PPF gives all of the efficient combination of supply of goods. So we need the demand for goods to determine the equilibrium position. If we remember, the demand for goods can be derived from consumer preferences (utility curves). Let us assume an aggregate utility function, which can be represented using a set of 'community indifference curves'. These curves reflect the aggregation of individual preferences. In order words, the society is willing to trade-off among goods. If we take two goods, X and Y, the equilibrium price ratio PX / PY.
will equate demand and supply for the both goods. In the process, (i) each consumer wouId take the price as given and maximise per utility subject to her budget constraints, (ii) each producer would take prices as given and maximise her profit given such prices. Subsequently, market of clears at the tangency point of PPF and community indifference curve.