The production possibility curve is the first diagram in every economics course (CBSE Class 11 Microeconomics, AP Microeconomics, A-level, IB Economics, the first week of any university course), and the question students bring to it is nearly always one of two: why is the curve decreasing, and why is it bowed. Both have one-sentence answers that most students can recite and cannot explain, and the exams ask for the explanation. This page gives the definition and assumptions, the two explanations properly, the meaning of every point on the diagram, what shifts the curve and what rotates it, the straight-line case, a worked example with the opportunity cost calculated at each step, and the mistakes examiners see most. The printable worksheet has a table to plot, six questions and the answers.
Download the production possibility curve worksheet (PDF) (a production schedule to plot, the opportunity cost at each step to calculate, six exam-style questions with model answers, and the diagram labelled; two pages, free).
What the curve shows, and the assumptions
The PPC plots the maximum output of one good against the maximum output of another when:
- only two goods are produced (the simplification that makes the diagram possible);
- the quantity of resources (land, labour, capital, enterprise) is fixed;
- the technology is fixed;
- all resources are fully employed and used efficiently.
Relax any of the last three and the curve moves. Keep them and every point on the curve is a maximum: the economy cannot have more of one good without less of the other.
| Point | Meaning |
|---|---|
| On the curve | Productive efficiency: full employment of resources; more of one good means less of the other |
| Inside the curve | Unemployment or inefficiency: resources idle or badly used; more of both goods is possible without any sacrifice |
| Outside the curve | Unattainable with current resources and technology; attainable only after the curve shifts outward |
| Moving along the curve | Reallocating resources from one good to the other; the sacrifice is the opportunity cost |
Why the curve is downward sloping (decreasing)
Because of scarcity and full employment together. On the curve every resource is already in use, so the only way to produce more of good A is to take resources away from good B. More A therefore always comes with less B: as the quantity on the horizontal axis rises, the quantity on the vertical axis falls, and the curve slopes downward from left to right. The slope is negative at every point.
The exam answer in one sentence: the PPC is downward sloping because resources are limited and fully employed, so an increase in the output of one good is possible only by reducing the output of the other. A positively sloped segment would mean more of both goods from the same fully used resources, which is a contradiction.
Why the curve is concave to the origin
Because the opportunity cost of each good increases as more of it is produced. Resources are not equally productive in both uses: some land grows wheat better than it grows cotton, some workers are trained for one job. When the economy first shifts resources from B to A, it moves the resources best suited to A and worst suited to B, so it gains a lot of A for little B. As it goes on, it has to move resources that were good at B and are poor at A, so each extra unit of A costs more and more B.
The slope of the PPC at any point is the marginal rate of transformation (MRT): the amount of B given up for one more unit of A. Increasing opportunity cost means the MRT rises as A increases, so the curve gets steeper from left to right, which is what "concave to the origin" (bowed outward) means geometrically.
The exam answer: the PPC is concave to the origin because of increasing marginal opportunity cost: as more of one good is produced, resources less suited to it must be transferred from the other good, so each additional unit costs more of the other good than the one before, and the MRT rises along the curve.
The straight-line case. If every resource were equally productive in both uses, the opportunity cost would be constant, the MRT the same at every point, and the PPC a straight line. Textbooks use it for simple numerical examples; real economies have increasing costs.
A worked example
An economy can produce wheat and cloth. The production schedule:
| Combination | Wheat (tonnes) | Cloth (bales) | Opportunity cost of the extra cloth (wheat given up) |
|---|---|---|---|
| A | 100 | 0 | |
| B | 95 | 10 | 5 tonnes for 10 bales: 0.5 per bale |
| C | 85 | 20 | 10 tonnes: 1.0 per bale |
| D | 70 | 30 | 15 tonnes: 1.5 per bale |
| E | 50 | 40 | 20 tonnes: 2.0 per bale |
| F | 0 | 50 | 50 tonnes: 5.0 per bale |
Plotted with cloth on the horizontal axis and wheat on the vertical, the points fall on a downward-sloping curve that is bowed outward, and the fourth column shows why: the opportunity cost of a bale of cloth rises from 0.5 tonnes to 5 tonnes as cloth production expands. The MRT at each step is the opportunity cost in the fourth column. A combination of 70 wheat and 20 cloth lies inside the curve (resources are idle); 90 wheat and 40 cloth lies outside (unattainable).
What shifts the curve, and what rotates it
| Change | Effect on the PPC |
|---|---|
| More resources (population growth, investment in capital, discovery of minerals) | Outward shift of the whole curve: growth |
| Better technology or education affecting both goods | Outward shift |
| Better technology affecting one good only | Rotation outward along that good's axis; the intercept on the other axis is unchanged |
| Loss of resources (war, natural disaster, emigration, depletion) | Inward shift |
| Unemployment or inefficiency | No shift: the economy moves to a point inside the curve |
| Reducing unemployment | No shift: a move from inside toward the curve |
| Choosing more capital goods now | No immediate shift, but a faster outward shift later, because capital goods raise future capacity (the capital-versus-consumer-goods PPC in AP and IB) |
The last three rows are the ones students confuse: a change in how fully resources are used moves the economy within the diagram; a change in the resources or technology moves the curve.
The mistakes examiners see most
- Explaining "downward sloping" with "concave": they are different properties with different causes (scarcity and full employment; increasing opportunity cost).
- Saying opportunity cost increases "because resources are scarce": scarcity explains the slope, not the curvature; the curvature needs resources that are not equally suited to both goods.
- Treating unemployment as an inward shift of the curve rather than a point inside it.
- Calculating opportunity cost as a total rather than per unit (the fourth column above divides by the ten bales).
- Drawing the curve convex (bowed inward), which would mean decreasing opportunity cost.
- Labelling the axes "goods" without naming them, or plotting the schedule with the goods swapped between the question and the diagram.
Download the production possibility curve worksheet (PDF)
Where to get help
A 1-on-1 online economics class with a tutor who holds a master's in economics, for CBSE Class 11 and 12, AP Microeconomics and Macroeconomics, A-level and IB Economics: the diagrams drawn and explained on the shared whiteboard, the exam board's own questions from the first unit, and every answer written to the marking scheme. The recording and notes after every class, the same tutor for the course, US$10 to $13 an hour. The free 30-minute first class is a real lesson on the topic the student is on this week.
Questions parents ask
1What is the production possibility curve?
2Why is the production possibility curve downward sloping?
3Why is the PPC concave to the origin?
4What does a point inside or outside the curve mean?
5What shifts the production possibility curve?
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