Cambridge International as and a level Economics Ebook

production possibility curve
. 
From the schedule in 
Table 1.2
 we can produce a production 
possibility curve with military goods plotted on the vertical 
axis and consumer goods on the horizontal axis.
Production possibility curve: 
a simple representation of 
the maximum level of output that an economy can achieve 
when using its existing resources in full.
KEY TERM
Figure 1.6 
shows all possible combinations of military 
goods and consumer goods that could be produced 
given the existing quantity and quality of resources in 
our simple economy and the existing state of technical 
knowledge. At point 
a
, only military goods are produced, 
and at point 
d
, only consumer goods are produced, but 
between these two extremes lie all the other possibilities. 
Th
e term ‘production possibility curve’ emphasises 
that this shows what levels of output an economy can 
achieve with its existing resources. It can also be used to 
show what the economy is 
not
able to achieve. Point 
Y
on the graph represents a combination of military 
and consumer goods that it is not possible to achieve. 
It is beyond this economy’s production possibilities. 
Sometimes the curve is called a ‘production frontier’ 
because it draws the boundary between what can and 
cannot be achieved.
Figure 1.6
 is also useful in illustrating the real cost 
to society of unemployed resources. Th
e point 
X 
on 
the diagram represents a production of 4,000 military 
goods and 3,000 consumer goods. Th
is is possible to 
achieve because it is within the production frontier, 
but it represents a point where some resources are 
unemployed or not employed eff ectively. Th
e economy 
is capable of moving to point 
b
with more military 
goods and the same number of consumer goods or to 
point 
c
, which would bring more consumer goods and 
the same quantity of military goods. Alternatively, at a 
point between 
b
and 
c
, the economy can have more of 
both types of goods. Looking at the diagram in this way 
illustrates the waste from unemployed resources. We 
are not satisfying as many of our wants as we could if all 
resources were used.
An alternative name for the production possibility 
curve is the ‘product
 
transformation curve’. Th
is 
emphasises a further use for the concept in introductory 
Economics. In 
Figure 1.6
 as the economy moves along