1.3 Production Possibilities Curve

What the PPC shows

The Production Possibilities Curve (PPC) shows the maximum combinations of two goods an economy can produce with fixed resources and technology. Points on the curve are efficient (full use of resources); points inside are inefficient (underused resources); points outside are currently unattainable.

Opportunity cost and shape

Moving along the PPC shows opportunity cost — the goods given up to produce more of another. A bowed-out (concave) PPC reflects increasing opportunity cost, because resources aren't perfectly adaptable between goods. A straight-line PPC shows constant opportunity cost, meaning resources are equally suited to producing either good.

Shifts in the PPC

The entire PPC shifts outward with economic growth: more resources, improved technology, or a larger/better-trained labor force. It shifts inward after resource loss, disaster, or destruction (e.g., war). A shift affecting only one good's production (like a new fertilizer for corn) rotates the curve outward on that axis only.

Key terms

Production Possibilities Curve (PPC)

A graph showing maximum combinations of two goods an economy can produce with fixed resources and technology.

Point inside the PPC

Represents inefficient production; resources are underused or unemployed.

Concave (bowed-out) PPC

Shows increasing opportunity cost, since resources are not equally suited for producing both goods.

Outward shift of PPC

Represents economic growth from more resources, better technology, or a larger labor force.

Straight-line PPC

Indicates constant opportunity cost; resources are equally adaptable between the two goods.

Try an AP-style question

What is the opportunity cost of the first 20 cars?

1. 60 wheat
2. 40 wheat
3. 20 wheat
4. 2 wheat