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 (all resources fully used); points inside are inefficient (unemployed/underused resources); points outside are unattainable given current resources.

Opportunity cost and shape

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

Shifts and growth

The entire PPC shifts outward with economic growth — from more resources, improved technology, or a larger labor force — increasing production possibilities for both goods. It shifts inward after resource loss, disasters, or destruction. Growth affecting only one good's production shifts that axis's endpoint outward, rotating the curve.

Key terms

Production Possibilities Curve (PPC)

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

Point inside the PPC

Represents inefficient production; resources are unemployed or underutilized.

Bowed-out PPC

Shows increasing opportunity cost as resources aren't perfectly adaptable between producing the two goods.

Outward shift of the PPC

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

Opportunity cost (on the PPC)

The amount of one good given up to produce more of another good, shown by movement along the curve.

Try an AP-style question

What is the opportunity cost of the first 20 cars?

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