PPC = Production Possibility Curve (frontier): the maximum output of two goods given existing resources and technology.
It represents the trade-off between two goods; the economy cannot produce beyond this frontier with current resources.
Shape and Opportunity Cost
The curve is bowed outward (concave to the origin), not linear.
This shape implies increasing opportunity cost: as you produce more of one good, you must give up progressively more of the other.
Expressed idea: ext{PPC is concave to the origin} and OCA \uparrow \text{ as } QA \uparrow (the opportunity cost of good A rises as more of A is produced).
Four Assumptions of the PPC
Two goods are produced (e.g., Good A and Good B); axis labeling is arbitrary.
Full employment of resources: all resources are used.
Productive efficiency: goods are produced at the lowest possible cost given resources.
Technology is up-to-date: the frontier reflects the maximum feasible production with current tech.
Points on, inside, and outside the curve
On the curve (e.g., points A, B, C): maximum feasible production given resources; productive efficiency.
Inside the curve (point D): inefficient use of resources (unemployment or underutilization).
Outside the curve (point E): unattainable with current resources; requires growth or trade to reach.
Comparative advantage and trade: if a country has the lower opportunity cost in one good, specialization and trade can allow more of both goods and effectively shift attainable production outward.
Shifting out the PPC (economic growth)
Outward shift indicates economic growth; use arrows to show movement to the right.
Ways to shift out the PPC:
Trade and specialization based on comparative advantage.
Discovering or adopting new resources (e.g., new inputs, energy reserves).
Population growth or migration increases the labor force.
New technology that improves production across all goods.
Invest in capital goods: more capital goods expands future production capacity; if you relabel the axes, you can think of Good A as capital and Good B as consumer goods.
Investment in capital goods can enable more of both capital and consumer goods in the future.