Production Possibilities
Opportunity cost, efficiency, and economic growth on the PPC.
What this graph shows
This is the production possibilities curve, the model of scarcity, trade-offs, and opportunity cost using two goods. The bowed-out curve shows every combination of Good X and Good Y an economy can produce when it uses all of its resources efficiently, and its outward bow reflects increasing opportunity cost as you specialize in one good.
The interactive lets you drag point A anywhere in the diagram, or use the On Curve, Inside, and Outside presets and the Good X and Good Y sliders to place it. The point changes color to tell you whether that combination is efficient, attainable but wasteful, or impossible. You can also drag the frontier itself or use the Inward and Outward buttons to model economic growth or decline.
How to read it
Good X is on the horizontal axis and Good Y on the vertical. Any point on the curve is efficient and turns green. A point inside turns amber, attainable but leaving resources idle. A point beyond the curve turns red, unattainable with current resources. The status readout confirms which case you are in, and the opportunity cost line tells you how many units of Good Y you give up for one more unit of Good X at your current position.
Three things to try
- Click the Inside preset and watch point A turn amber, showing a combination that wastes resources because the economy could produce more of both goods.
- Drag point A along the curve from the top toward the right and read the opportunity cost value climbing, which is the increasing opportunity cost the bowed shape represents.
- Press the Outward button to shift the whole frontier out, then place a previously red, unattainable point and see it become reachable after growth.
Common questions
What do points on, inside, and outside the PPC mean?
A point on the curve is efficient, using all resources fully. A point inside is attainable but inefficient, leaving resources unused. A point outside is unattainable given current resources and technology. The point changes color to green, amber, or red to show which you have chosen.
Why is the production possibilities curve bowed outward?
The outward bow shows increasing opportunity cost. As you move resources toward one good, you have to give up more and more of the other because resources are not equally suited to both goods, which you can see as the opportunity cost value rising along the curve.
How does economic growth show up on a PPC?
Economic growth shifts the entire curve outward, so combinations that were once unattainable become reachable. Use the Outward button to model growth from more resources or better technology, and the Inward button to model decline.
Production Possibilities: key terms
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