Definition of production possibility curves (PPC)

Published by Patrick Mutisya · 14 days ago

IGCSE Economics 0455 – The Basic Economic Problem: Production Possibility Curve (PPC)

Cambridge IGCSE Economics 0455

The Basic Economic Problem – Production Possibility Curve (PPC)

Objective

To understand and be able to give a clear definition of a Production Possibility Curve (PPC) and to recognise its key features.

Definition of a Production Possibility Curve

A Production Possibility Curve (PPC) is a graphical representation that shows the maximum possible output combinations of two goods or services an economy can produce when all resources are fully and efficiently employed, given the existing technology and resource endowments.

Key Characteristics of the PPC

  • Shows the trade‑off between two goods.

  • Points on the curve represent efficient production levels.

  • Points inside the curve indicate under‑utilisation of resources.

  • Points outside the curve are unattainable with current resources and technology.

  • The curve is typically bowed outwards due to increasing opportunity costs.

Opportunity Cost on the PPC

The opportunity cost of producing more of one good is the amount of the other good that must be given up. It can be expressed as:

\$OC_{X} = \frac{\Delta Y}{\Delta X}\$

where ΔY is the reduction in output of good Y and ΔX is the increase in output of good X.

Typical Shape of the PPC

The PPC is usually concave to the origin, reflecting the principle of increasing opportunity cost: as production of one good expands, resources less suited to its production are employed, raising the cost in terms of the other good.

Suggested diagram: A bowed‑out Production Possibility Curve showing points A (efficient), B (inefficient), and C (unattainable) with axes labelled “Good X” and “Good Y”.

Summary Table

FeatureExplanation
Efficient pointAny point on the curve; resources are fully utilised.
Inefficient pointAny point inside the curve; some resources are idle or misallocated.
Unattainable pointAny point outside the curve; cannot be produced with current resources/technology.
ShapeBowed‑out (concave) due to increasing opportunity cost.
Movement along the curveShows the trade‑off and opportunity cost between the two goods.

Why the PPC Matters

Understanding the PPC helps learners to grasp fundamental economic concepts such as scarcity, choice, efficiency, and opportunity cost – the core of the basic economic problem.