1.4 Production Possibility Curve (PPC) Diagrams

2026 Syllabus Objectives

By the end of this topic, you should be able to:

  • 1.4.1 Define a PPC, draw one, and explain what it shows
  • 1.4.2 Explain what it means when a production point is under, on, or beyond a PPC
  • 1.4.3 Explain movements along a PPC and link them to opportunity cost
  • 1.4.4 Explain what causes a PPC to shift and what those shifts mean for an economy

1.4.1 — What is a Production Possibility Curve?

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Definition

A Production Possibility Curve (PPC) — also called a Production Possibility Frontier (PPF) or Production Possibility Boundary — is a graph that shows all the maximum combinations of two goods that an economy can produce when it uses all of its available resources fully and efficiently.

In simple terms: it draws a "limit line" showing the most an economy can ever produce with what it currently has.

Assumptions of the PPC Model

The PPC is built on three key assumptions (things we take as given):

  1. The economy produces only two types of goods — usually capital goods and consumer goods
  2. The economy is at full employment — meaning every available resource (land, labour, capital) is being used
  3. The economy has a fixed, limited amount of factors of production (resources cannot suddenly increase)

Capital goods are goods used to make other goods — think machines, factories, and tools. For example, a robotic arm in a car factory.

Consumer goods are finished products bought and used by people — think clothes, phones, and food. They have no future productive use.

How to Draw a PPC

A PPC is drawn on a simple graph:

  • The Y-axis (vertical) shows the quantity of one good (e.g. capital goods)
  • The X-axis (horizontal) shows the quantity of the other good (e.g. consumer goods)
  • The curve connects all the maximum output combinations — it bows outward away from the origin (the bottom-left corner)
Capital Goods
    |
200 |B
    |   \
150 |    C
    |       \
100 |         D
    |            \
  0 |______________A___
    0   120  225  300
           Consumer Goods
  • Point A — all resources used for consumer goods only (300 consumer goods, 0 capital goods)
  • Point B — all resources used for capital goods only (200 capital goods, 0 consumer goods)
  • Points C and D — combinations of both goods, all using resources fully

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