Chapter 4

20
Production possibility curves
Learning objectives
By the end of this chapter you will be able to:
■ define a production possibility curve
■ draw a production possibility curve
■ interpret points under, on and beyond a production possibility curve
■ analyse movements along a production possibility curve
■ analyse the causes and consequences of shifts in a production possibility curve

Introducing the topic

The USA produces many more goods and services than Mauritius. In 2015, the output of the
USA was valued at $18 trillion whereas it was only $25 billion in Mauritius. You should not be
surprised at this difference. The USA has a much larger economy with a much larger labour
force, more capital equipment, more entrepreneurs and more natural resources.
The productive potential of an individual, firm or a country can be shown on a production
possibility curve (PPC) diagram. Such a diagram can also illustrate opportunity cost and
efficiency.
 Chapter 4: Production possibility curves

4.1 A production possibility curve

A production possibility curve is also known as a production possibility frontier or a KEY TERM
production possibility boundary. It shows the maximum output of two types of products,
Production
and combinations of those products that can be produced with the existing quantity and possibility curve: a
quality of resources and technology. curve that shows the
maximum output of
Figure 4.1 shows that a country can produce either 200 capital goods or 300 consumer goods
two types of products
or a range of combinations of these two types of goods. and combination of
those products that
Capital goods
can be produced with
200 existing resources and
technology.

TIP
Make sure you draw a
Consumer
0 300 PPC to each axis – do
not leave a gap.
Fig. 4.1: A production possibility curve

4.2 Production points

While a PPC shows what is the maximum amount that can currently be produced, a 21
production point shows what is being produced or what may be produced in the future.
Any point inside the curve means there is not full use of resources. Point X on Figure 4.2
shows output is being produced where there are unemployed resources.
Good A

Good B
0

Fig. 4.2: A production possibility curve and production points

 Cambridge IGCSE Economics

LINK A point anywhere on the curve, such as point Y, means that maximum use is being made of
Chapter 29.2
resources. This is an efficient output. There are not enough resources to produce outside the
Recession (causes and limit set by the PPC. So a point such as Z is not currently attainable.
consequences)
INDIVIDUAL ACTIVITY 1

Look at the graph and answer the questions.

Capital goods
TIP
Be careful with
labelling a PPC. 150
The labels should
show two types of
products.

60 Y

50 X

Consumer
0 200 300 380 goods

Fig. 4.3: A country’s PPC

1 If a country is producing at point X, what is its output of capital goods and consumer goods?
2 If a country’s output moves from point X to point Y, how many more capital goods and how
many more consumer goods will it produce?
22
3 What is the maximum number of capital goods that can be produced if all resources are
devoted to capital goods?

4.3 Movements along a PPC

A movement along a PPC shows that resources are being reallocated. It also shows the
opportunity cost of that decision. Figure 4.4 shows a country initially deciding to produce
80 units of manufactured goods and 75 units of agricultural goods. If it then decides to
produce 100 units of agricultural goods, it will have to switch resources away from producing
manufactured goods. The diagram shows the reduction of output of manufactured goods to
60 units. In this case, the opportunity cost of producing 25 extra units of agricultural goods is
20 units of manufactured goods.
Manufactured goods

100

80

60

LINK

Chapter 3.2 Influence Agricultural

of opportunity cost on 0 75 100 150 goods
decision making
Fig. 4.4: A movement along the PPC
 Chapter 4: Production possibility curves

INDIVIDUAL ACTIVITY 2

Using Figure 4.5.

1 State the maximum number of capital goods the country can produce if it devotes all of its
resources to making capital goods.
2 Calculate the opportunity cost of increasing the output of consumer goods from 80 to
90 units.
Capital goods

50
35
30

Consumer
goods
0 80 90 120

Fig. 4.5: A country’s PPC

The shape of the PPC

PPCs are usually bowed outwards as shown in Figures 4.1–4.5. This is because the best
resources are used first to produce a particular type of product. It was noted that in Figure 4.4
the opportunity cost of increasing the output of manufactured goods from 60 to 80 was 25
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agricultural goods. To increase the output of manufactured goods by a further 20 to 100 would
involve a higher opportunity cost of 75. The last resources switched from producing agricultural
goods would have been the least suited to producing manufactured goods.
In the less common situation where resources are equally suited to producing both types of
products, the opportunity cost remains constant. In this case, the PPC is shown as a straight
line as shown in Figure 4.6.
Pairs of socks

45

Ties
0 90

Fig. 4.6: A straight line PPC

The opportunity cost of producing 1 more pair of socks remains at 2 ties as the output of
socks changes.
 Cambridge IGCSE Economics

4.4 Shifts in a PPC

Causes of shifts in the PPC
The PPC will shift to the right, as shown in Figure 4.7, if there is an increase in the quantity or
quality of resources. For example, if there is an increase in the size of the labour force, the
maximum output that a country can produce will increase.
Capital goods
B

Consumer
0 A B goods

Fig. 4.7: A shift in a PPC

A shift to the left of the PPC will be caused by a reduction in the quantity or quality of resources.

GROUP ACTIVITY 1

24 In your group, discuss and decide whether the following will cause a shift of a country’s PPC to
the left or the right:
a advances in technology
b a rise in the retirement age
c improved education
d widespread floods
e worn out capital goods not being replaced.
 Chapter 4: Production possibility curves

Consequences of a shift in the PPC

A shift to the right of the PPC increases a country’s productive potential. It will be capable
of producing more. This is referred to as potential economic growth. To take advantage of
this increased capacity, the extra or better quality resources have to be employed. Figure 4.8
shows both the PPC and the production point moving to the right. Output increases. A rise in
a country’s output is actual economic growth.
Agricultural goods

75 Y

60 X

LINK
Manufactured
0 60 70 A B goods Chapter 29.3 Economic
growth (causes)
Fig. 4.8: Economic growth

Summary
25
You should know:
■ A PPC can be used to illustrate opportunity cost. It shows what can be produced with existing resources
and current technology.
■ A point inside a curve indicates unemployed resources, a point on the curve shows full use of resources
and a point to the right of the curve is currently unattainable.
■ A movement along a PPC shows a reallocation of resources and the opportunity cost involved.
■ A bowed outwards PPC shows an increasing opportunity cost whereas a straight line PPC shows a
constant opportunity cost.
■ An increase in the quantity or quality of resources will cause a shift of the PPC to the right and an
increase in productive potential.
 Cambridge IGCSE Economics

Multiple choice questions

1 A country experiences a fall in unemployment. How would this be shown on a PPC diagram?
A A movement of the production point away from the curve
B A movement of the production point towards the curve
C A shift of the PPC to the left
D A shift of the PPC to the right

2 Which points in the diagram are attainable?

Capital goods
T

S
R

U Consumer
0 goods

A R and S
B V and W
C R, S, T and U
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D T, U, V and W

3 The diagram shows a country’s PPC. What can be concluded from the shape of the PPC?
Films

50

TV programmes
0 200

A All resources are equally good at producing films and TV programmes

B Resources cannot be switched between producing films and TV programmes
C The country is able to produce 50 films and 200 TV programmes
D TV programmes take more resources to produce them than films
 Chapter 4: Production possibility curves

4 Using the diagram, determine the opportunity cost of increasing the output of luxury
goods from 25 to 35.

Luxury goods

85

35
25

Basic goods
0 92 100 120

A 8 basic goods
B 10 luxury goods
C 25 luxury goods
D 92 basic goods

Four-part question
a What is the difference between a point inside and a point on a PPC? (2)
b Explain two causes of a shift in a PPC. (4)
c Analyse how a PPC illustrates scarcity, opportunity cost and efficiency. (6)

27
 Cambridge IGCSE Economics

Exam-style questions
Multiple choice questions
1 What gives rise to the problem of scarcity?
A a lack of money
B an uneven distribution of income
C capital equipment being greater than labour
D wants exceeding resources

2 As an economy becomes richer, what happens to resources and wants?

Resources Wants
A decrease decrease
B decrease increase
C increase decrease
D increase increase

3 Which of the following is an example of the factor of production ‘capital’?

A the money a farmer has borrowed to buy livestock
B the money a farmer has saved in the bank
C a farm worker
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D a tractor

4 Which type of factor of production can be described as a ‘natural resource’?

A capital
B entrepreneur
C labour
D land

5 A woman owns a TV which she bought for $300. She is considering buying a better model
for $450. Her neighbour offers her $200 for her TV. What is the opportunity cost of her
rejecting this offer?
A $100
B $200
C $300
D $450

6 A man presently works as a builder. His previous jobs included working as a farm labourer
and a street trader. His next best-paid job is that of a carpenter, but he would rather
choose to work as a gardener, if he was not a builder. What will be the opportunity cost of
him working as a builder? Working as:
A a carpenter
B a farm labourer
 Chapter 4: Production possibility curves

C a gardener
D a street trader

7 What does a production possibility curve show?

A the amount of capital and labour in a country
B the output of two products that can be produced with given resources
C the popularity of the two products
D the price of the two products that are produced with given resources

8 What could have caused the change in the shape of the production possibility curve (PPC)
shown below?

Food

Clothing
0
29
A advances in technology in the clothing industry
B an increase in the size of a country’s labour force
C a change in consumer preferences towards clothing
D more resources being devoted to producing clothing

9 What is the change in the opportunity cost of increasing the output of capital goods from
20 to 30 when the PPC shifts to the right the diagram below?

Capital goods

80

30
20
Consumer
goods
0 70 100 140 150 200

A a reduction of 10 consumer goods

B a reduction of 20 consumer goods
C a reduction of 30 consumer goods
D a reduction of 40 consumer goods
 Cambridge IGCSE Economics

10 The diagram below shows a country producing at point X. What is the opportunity cost of
moving production to point Y?

Luxury goods

40

23 Y
20 X

Basic goods
0 50 62 96

A 34 basic goods
B 17 luxury goods
C 12 basic goods and 3 luxury goods
D zero goods

Data response question

Study the source material carefully and then answer Question 1.
Source material: Agricultural output in Africa
30
The output of more fertilisers and better irrigation have contributed to higher agricultural
output for each unit of land in Africa in recent years. More significant, however, has been
the increase in the quantity of land used to grow crops. For example, in 1975 12% of land
was used for agriculture. By 2015 this had increased to 25%. In Mauritania, agricultural
expansion is particularly high at 7% per year.

Despite the rise in agricultural output, the quantity of high quality food that people would
like to consume is not keeping pace with the rise in population in all African countries.
Africa’s population is set to double by 2050, which will increase even further the demand
for food. As incomes increase in Africa, the desire for a range of products is increasing.
People in Africa are, for example, wanting more and better housing. Indeed, the desire for
housing usually outstrips the growth in resources devoted to housing. People constantly
strive for better living standards. The expansion of the house building industry is
encouraging some farm workers to switch to working in the building industry. Changes in
the pattern of demand are causing not only agricultural workers, but also other workers
to change their occupation and where they work.

Agricultural output can fluctuate quite significantly as it can be influenced by, for
example, floods, droughts and heatwaves. The contribution of agricultural output varies
between countries. For example, in 2015 agriculture accounted for only 2% of South
Africa’s output, but 21% of Nigeria’s output.

The total output that a country produces is influenced by the size of the labour force. The
table shows the size of the labour force and total output for a group of selected African
countries.
 Chapter 4: Production possibility curves

Country Labour force (millions) Total output (US$ billions)

Ethiopia 49 62
Ghana 12 38
Mali 6 13
Nigeria 58 481
South Africa 21 315

The labour force and total output of five African countries

1 Referring to the source material in your responses, complete all parts of Question 1.
a Calculate the value of agricultural output in South Africa in 2015. (1)
b Identify two reasons why the productivity of land has increased in Africa. (2)
c Explain the opportunity cost of working on a farm. (2)
d Analyse, using a PPC, the effect on an economy of a flood. (4)
e Explain two examples of the economic problem. (4)
f Analyse the relationship between the size of a country’s labour force and its output
shown in the table. (5)
g Discuss whether or not skilled workers are likely to be more occupationally and
geographically mobile than unskilled workers. (6)
h Discuss whether or not an increase in the output of food will reduce the output of
other products. (6)

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Four-part question
1 In late 2016 an Australian firm announced that it would be starting a project to use
the power of waves off the coast in Cornwall in the UK to generate electricity. More
entrepreneurs are becoming interested in making use of wave power which is a free good.
More labour is likely to be employed in the industry. The quantity of labour has increased
in recent years.
a Define an entrepreneur. (2)
b Explain the difference between a free good and an economic good. (4)
c Analyse, using a PPC, the effect on an economy of an increase in the supply
of labour. (6)
d Discuss whether or not the quantity of labour in the UK is likely to increase in the
future. (8)
 SECTION 2
The allocation of resources 33
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