Basic Economic Problem · 4 question types
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.
When an economy is already efficient (on its curve) and decides to produce more of good A, it cannot magically also produce more of good B. The resources used to make extra A have to come from B. That is the opportunity cost, made visible.
A movement along the PPC illustrates the opportunity cost of switching resources between two goods. Producing more of one good can only be done by producing less of the other.
Movement along the PPC and opportunity cost
What comes up: questions asking you to explain what a movement along the PPC shows, or to apply opportunity cost to a diagram or table.
Write: a movement along the curve shows that resources have been shifted from one good to the other (1); to produce more of one good, some of the other must be given up — this sacrifice is the opportunity cost (1).
Watch out: opportunity cost only applies when the economy is already on the curve. Moving from a point inside the curve to the curve does not involve opportunity cost — both goods can increase by putting idle resources to work.