A PPC shows the maximum combinations of two goods an economy can make with all its resources.
A production possibility curve (PPC) shows the most an economy can make of two goods. It assumes all resources are used fully and efficiently. It also assumes technology stays the same.
Points on the curve, such as A and B, are attainable and efficient. All resources are employed and none are wasted. To make more of one good, the economy must make less of the other.
A point inside the curve, such as C, is attainable but inefficient. Some resources are unemployed, for example during a recession, or used badly. The economy could produce more of both goods.
A point outside the curve, such as D, is unattainable with current resources and technology. Reaching it would need more or better resources.
- PPC
- Maximum combinations of two goods with all resources used fully and efficiently.
- On the curve
- Efficient: all resources fully employed.
- Inside
- Inefficient: unemployed or wasted resources.
- Outside
- Unattainable with current resources and technology.
Worked example: Reading a PPC in an answer
A question shows a PPC with point C inside the curve and asks what C shows.
- Locate the point: C is inside the PPC.
- State the meaning: the economy is not using all its resources fully or efficiently.
- Give a cause: unemployment of workers or idle machines, as in a recession.
- Give the consequence: output of both goods could rise without giving up either, by moving towards the curve.
Watch out for this
A point inside the PPC means the economy has reached its limit.
The limit is the curve itself. A point inside means resources are being wasted, so the economy could produce more of both goods.
Check your understanding
An economy is producing at a point inside its PPC. What does this show?
- Some resources are unemployed or used inefficiently.
- The economy has experienced economic growth.
- The economy is producing an unattainable combination.