Production Possibility Curves
Basic Economic Problem · 4 question types
Exam Frequency Analysis
Past paper frequency (2018 to 2024)
This topic accounts for approximately 10% of your exam marks.
PPC diagram interpretation appears in roughly half of all Paper 2 sittings; outward shifts and opportunity cost from the diagram are the key mark points.
Suppose an economy can produce wheat and cloth. Five combinations are possible, all on the curve.
| Combination | Wheat (units) | Cloth (units) |
|---|---|---|
| A | 0 | 120 |
| B | 30 | 110 |
| C | 60 | 80 |
| D | 90 | 40 |
| E | 110 | 0 |
Reading the table from left to right (taking on more wheat each time), the opportunity cost rises:
| Move | Extra wheat | Cloth given up | Per-unit OC |
|---|---|---|---|
| A → B | 30 | 10 | 0.33 cloth per unit of wheat |
| B → C | 30 | 30 | 1.00 cloth per unit of wheat |
| C → D | 30 | 40 | 1.33 cloth per unit of wheat |
| D → E | 20 | 40 | 2.00 cloth per unit of wheat |
The opportunity cost rises as the economy specialises further in wheat. That is why the PPC is usually drawn curved outward rather than as a straight line: as more resources are switched to wheat, the resources being moved are ones less and less suited to wheat production. This is sometimes called the .