Production possibility curves
The production possibility curve
- A PPC shows the largest combinations of two goods an economy can make using all its resources well.
- on the curve → all resources used efficiently.
- inside the curve → resources wasted (e.g. unemployment).
- outside the curve → impossible today (shows scarcity).
Practice
A point INSIDE the PPC means:
Inside = waste/unemployment; on = efficient; outside = impossible (scarcity).
Opportunity cost & shape
- Moving along the curve shows opportunity cost: more food means fewer machines (a trade-off).
- a straight PPC → constant opportunity cost.
- a bowed-out PPC → increasing opportunity cost (resources aren't equally good at both).
Practice
A PPC that bows outwards shows:
A bowed PPC means each extra unit costs more and more of the other good.
Shifts and growth
- The whole PPC shifting outward = economic growth (more/better resources, new technology).
- Inward = decline (war, disaster).
- Making more capital goods now (vs consumer goods) shifts the future PPC out further.
Practice
An outward shift of the whole PPC represents economic growth.
More or better resources (or new technology) shift the PPC outward — economic growth.
You've got it
Key idea
- PPC: on = efficient, inside = waste/unemployment, outside = impossible (scarcity)
- a bowed PPC shows increasing opportunity cost; straight = constant
- outward shift = growth; capital goods today → faster future growth