A fundamental issue in Economics is determining the most efficient way to distribute limited resources. A production possibility curve (PPC) illustrates the possible production combinations of two different goods or services using those resources.

Producing along the PPC

1. The PPC above shows the maximum number of houses (on the horizontal axis) and vehicles (on the vertical axis) that can be made, using all the existing resources in the economy.
2. An economy can choose to produce a maximum combination of goods represented by any point in its PPC curve.
3. Points A, B, C, and D (along with any other point on the PPC) can be reached without needing additional resources than those available in the economy.
4. However, all the available resources must used as efficiently as possible for the economy to produce at any point along its PPC (the production possibilities are maximised).

Producing inside the PPC

1. Figure 1's economy can produce, if all its current factors of production are used as efficiently as possible, a maximum combination of goods at any point along its PPC curve.
2. Therefore, if the economy produces a combination of goods at any point inside its PPC curve (like point F), that means that either:
   1. Not all the economy's factors of production are utilised.
   2. Not all the economy's factors of production are utilised efficiently: there is losses in the production possibilities due to inefficiencies.
3. For Figure 1's economy to move from point F to any point closer (or at) its PPC curve, it must either utilise more of its currently available factors of production or improve its production efficiency.

Producing outside the PPC

1. Producing at point E (or any other point beyond the PPC) is unattainable with the economy's existing resources, because it means that point E lies beyond the production possibilities of the economy.
2. The economy simply does not have the resources (factors of production) to produce 250 burgers and 250 laptops. Producing that quantity of burgers and laptops simultaneously would require additional or improved resources.
3. In order to produce at any point outside its PPC curve (like point E), the economy must access extra or better resources than those currently available.

Assumptions of the PPC model

The PPC model simplifies the complexities of an economy by making several key assumptions:

1. Two Goods: The economy produces only two goods or services (e.g., consumer goods and capital goods), simplifying the analysis.
2. Fixed Resources: The quantity and quality of resources (land, labor, capital, and entrepreneurship) are constant.
3. Fixed Technology: The level of technology remains unchanged during the analysis period.
4. Full Employment and Efficiency: All resources are used fully and efficiently, meaning there is no waste or unemployment.

Increasing versus constant opportunity costs in a PPC model

In the previous section the concept of opportunity costs was introduced as the value of the next best alternative that must be sacrificed when making a choice between different production options.

A PPC curve can showcase two types of opportunity costs between two goods an economy is producing:

• Increasing opportunity costs.
• Constant opportunity costs.

Increasing Opportunity Costs