Cambridge IGCSE Economics
Website by Paul Hoang
Updated 13 October 2023
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1 Basic economic problem
1.1 Nature of the economic problem
1.2 Factors of production
1.3 Opportunity cost
1.4 Production possibility curve
o 1.4.1 Definition of PPC
o 1.4.2 The location of production points
o 1.4.3 Movements along a PPC
o 1.4.4 Shifts in a PPC
o 1.4 Key terms
o 1.4 Review questions
o 1.4 Paper 1 Exam Practice Questions
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1.4.1 Definition of PPC
1 Basic economic problem
1.4 Production possibility curve
1.4.1 Definition of PPC
1.4.1 - Definition of PPC
This section of the syllabus requires students to be able to define the production possibility curve (PPC), as well as to
draw and interpret the PPC using appropriate diagrams.
A production possibility curve (PPC) shows the potential or maximum combination of any two products that can be
produced in an economy, at a particular point in time if all resources are used efficiently.
The key purpose of the PPC model is to show the relative output of the two products using the economy's scarce
resources. Hence, the PPC can be used to illustrate the concept of opportunity cost.
In the diagram below, the PPC represents the maximum capacity of an economy in the production of producer products
and consumer products.
The PPC shows the maximum output of consumer and producer products that can be made at any point in time. By
choosing to produce only consumer products, the economy would be operating at point A. If it chooses to only make
producer goods, it would be operating at point B. In reality, the economy is likely to want to produce a combination of
these products, so will operate at point C for example.
However, it is important to note that the economy can only operate at a point on its PPC if the following two conditions
hold:
1. There is no unemployment, i.e., all factors of production are employed
2. There are no inefficiencies, i.e., all resources are put to their most effective use.
So, if there is unemployment and/or inefficiency, the economy will be operating within its PPC.
Return to Unit 1.4 - Production possibility curve homepage
Return to the Unit 1 - Basic economic problem homepage
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