IBonomicsProduction Possibility Curve (Choice and Opportunity Cost)SL
MicroeconomicsA production possibility curve illustrating the concept of opportunity cost and the trade-offs between producing two goods: mangos and bananas.
Curves and elements
- ppc
- Production Possibility Curve (PPC): Represents the maximum possible output combinations of two goods an economy can produce when resources are fully and efficiently used.
- point a
- Point a: Produces 150 mangos and 100 bananas. More mangos, fewer bananas.
- point b
- Point b: Produces 120 mangos and 120 bananas. More bananas, fewer mangos.
Key explanations
- 1
Point a represents a combination where 150 mangos and 100 bananas are produced.
- 2
Point b represents a different combination with 120 mangos and 120 bananas.
- 3
Moving from point a to point b involves a trade-off: gaining 20 more bananas comes at the cost of producing 30 fewer mangos.
- 4
This illustrates the concept of opportunity cost — the loss of the next best alternative when a choice is made.
- 5
The curve is concave due to the law of increasing opportunity cost: as more bananas are produced, increasingly more mangos must be sacrificed.
- 6
Any point inside the curve would represent underutilization of resources, while points outside are currently unattainable.
Example exam question
Using a PPC diagram, explain the concept of opportunity cost when an economy moves from producing more mangos to more bananas.
Show example answer
When an economy moves from point a to point b on the PPC, it increases banana production from 100 to 120 but sacrifices mango production, which falls from 150 to 120. This trade-off highlights the concept of opportunity cost: the 30 mangos given up are the opportunity cost of producing 20 more bananas. Because resources are scarce, producing more of one good means producing less of another. The PPC is bowed outwards to show that opportunity costs increase as production shifts, reflecting that not all resources are equally efficient in producing both goods.
