Explain the economic concepts shown by a production possibility curve diagram.

⮞ Opportunity cost

Opportunity cost is the cost expressed in terms of the best alternative that is forgone. The PPC curve shows that if more of one type of product is produced, less of another product can be made

⮞ Efficiency and full employment

The curve shows that more than one production point cannot be selected Any point on the curve is efficient and any point inside the curve is inefficient

⮞ Specialisation

The production possibilities model suggests that specialization will occur. Specialisation implies that an economy is producing the goods and services in which it has a comparative advantage.

⮞ Economic growth and the difference between actual and potential economic growth

The curve shows the maximum amount of a product that can be produced if all resources are devoted to one good

Economic growth is shown by a shift to the right of the curve and actual growth is shown by a movement towards the curve and potential growth by a shift to the right