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.
Example — An economy can produce either wheat (on the horizontal axis) or cloth (on the vertical axis). It is currently at point X, producing 60 units of wheat and 80 units of cloth. It moves to point Y, producing 100 units of wheat and 50 units of cloth.
Notice that the opportunity cost is the fall in the sacrificed good, not the rise in the chosen good. Examiners frequently test this.
Per-unit opportunity cost. If the question asks for opportunity cost per extra unit of wheat, divide:
Opportunity cost per unit of wheat = sacrificed cloth ÷ extra wheat = 30 ÷ 40 = 0.75 units of cloth per unit of wheat.
A bare number with no units (just "30" or "0.75") loses the answer mark. Always quote the units of the sacrificed good.