Production Possibility Curves

On the curve, inside the curve, outside the curve. These three cases are the foundation of every PPC exam question.

Points on the curve

A point that sits exactly on the curve is productively efficient: every resource is fully employed and is producing as much as it can. There is no waste.

A country with no idle factories, no unemployed workers, and no land sitting fallow is operating somewhere on its PPC. Moving to a different point on the same curve means making a different mix of the two goods, but still at maximum output.

Points inside the curve

A point inside (below) the curve represents productive inefficiency: some resources are idle, unemployed, or underused.

Inside the curve, the economy is producing less than it could. The same resources could be used to make more of both goods at once. Typical causes:

• High unemployment (workers want jobs but cannot find them).
• Factories running below capacity.
• Land left uncultivated.
• A recession that has pulled output below potential.

A move from a point inside the curve to a point on the curve uses no extra resources; it simply uses the existing resources better. There is no opportunity cost for that move because nothing was given up.

Points outside the curve

A point outside (beyond) the curve is currently unattainable. Given the economy's current resources and technology, that combination of outputs is impossible.

To reach an outside point, the economy needs more resources or better technology; only then does the curve itself shift outward.

A common slip: calling a point outside the curve "inefficient". It is not inefficient; it is impossible with the current PPC. Inefficiency lives inside the curve.