Unit 1.2: Opportunity Cost and the Production Possibilities Curve (PPC)

Opportunity Cost: The value of the next best, foregone alternative to any decision made

  • What you could have done

  • What you could have acquired

  • What you could have earned

Production Possibilities Curve (PPC): A simplified model of an economy producing only two goods/two categories of goods

  • Curve represents output combinations which occur due to efficient use of resources

  • Point inside the curve is an inefficient use of resources

  • Point outside the curve represents a combination that it unattainable at the moment

Efficient: Can’t produce more of one good without decreasing the production of another good

Economic Growth: An outward shift of the production possibilities curve

Increasing Opportunity Cost: Bowed-out production possibilities curve

Constant Opportunity Cost: Straight Line (linear) production possibilities curve

Decreasing Opportunity Cost: Bowed-in production possibilities curve