How Does a Production Possibility Curve Work?
Learn how a production possibility curve shows scarcity and opportunity cost, what points on or inside it mean, and when the whole curve shifts for A Level Economics.
A production possibility curve (PPC) shows the maximum combinations of two goods an economy can produce using its available resources and technology. It helps explain scarcity, choice and opportunity cost: producing more of one good usually means producing less of the other.
Reading the curve
- A point on the PPC is achievable when resources are fully and efficiently used.
- A point inside the PPC is achievable, but some resources are unemployed or used inefficiently.
- A point outside the PPC cannot be achieved with the economy’s current resources and technology.
This is the Production possibility curves topic in Cambridge International AS Level Economics (1.5.1–1.5.4); A Level students also study this AS content.
Moving along the PPC
Suppose an economy can produce rice and bicycles. If it moves from producing 100100100 tonnes of rice and no bicycles to 808080 tonnes of rice and 101010 bicycles, it gives up 202020 tonnes of rice. That forgone rice is the opportunity cost of producing the bicycles.
If producing another 101010 bicycles means rice output falls from 808080 to 505050 tonnes, the next 101010 bicycles cost 303030 tonnes of rice. The rising opportunity cost gives a PPC its usual outward-bowed shape: resources are not equally suited to making both goods. If opportunity cost stays constant, the PPC is a straight line.
Shifting the PPC
A change in productive capacity shifts the whole curve. More resources or improved technology can shift it outwards, making previously unattainable combinations possible. A loss of resources can shift it inwards.
The common exam mistake is to call every change a shift. Choosing to make more bicycles and less rice is a movement along the PPC; increasing the economy’s ability to produce is a shift of the PPC.
