IGCSE Economics – Production Possibility Curve

Production Possibility Curve

 Draw a Production Possibility Curve (use a ruler for the axis) that shows the production of 2 items:
100 pencils or 100 rubbers.
 Shade the area of the graph that represents inefficient use of resources in red.
 Explain how this diagram indicates the opportunity cost of increasing the production of either
rubbers or pencils.

BASIC ECONOMIC PROBLEMS

1 Question:

Water can be used for a number of things such as car washing, schools, gardens, drinking, baths and
toilets’

• How does this comment above illustrate the basic economic problem? (3)

• Name one industry which might have benefited from the long hot summer and explain why (3)

• Explain how a long hot summer such as in 1995 would affect:

1) supply of water

2) demand for water (6)

2 Question: (note this was also asked on a higher tier exam paper)

Name the 4 factors of production (4)

• Describe briefly how you think they are likely to be used in the production of Jelly bean sweets (4) A
sweet manufacturer plans a major change in its methods of production with the introduction of greater
automation (machinery) than before. Discuss the possible costs and benefits of this increased automation.
(9)

HIGHER LEVEL

3 Question

Explain the difference between a service industry and a manufacturing industry, giving examples to
illustrate your answer. (4)

Is a large manufacturing sector essential for a successful economy? Give economic reasons for your
answer. (10)

4 Question

Explain why even Richard Branson (rich business person) is likely to face the basic economic problem. Give
economic reasons for your answer. (4)
5 Question

Miss X made her fortune by operating a highly successful scottish factory which produces tins of salmon.
The business makes considerable use of specialist labour and machines. Explain the advantages and
disadvantages of this type of specialisation for:

1) the firm (4)

2) the worker (4)

6 Question

Distinguish clearly between production and productivity (2)

Question 1
a) Draw and Explain a Production Possibility Curve (use a ruler for the axis) that shows the production of 2
items: Product A & B.
b) Indicate/shade the area of the graph that represents inefficient use of resources and unattainable point.

Production Possibility Curve: The following is a curve representing all possible combinations of two goods that can be
produced by an economy where all of its resources are fully and efficiently employed.

Point X: The economy can exist at this point but it is being inefficient. Point X Is considered inefficient as resources are
idle. This could mean that workers are unemployed or unmotivated, machines are idle or that factories are half used.
Point Y: Point Y is unattainable as the economy doesn’t have enough resources to produce both of the products.

Shift along The Curve: Movement along the PPC involves an opportunity cost. For instance if the economy moves
from point A to B less product B will be formed and less product A will be produced as compared to before. This
would result in an opportunity cost of some product A that was first produced. Therefore all along the PPC,
opportunity cost is incurred.

Rightward Shift:

Reasons for rightward shift:

 The quantity of resources available for production can increase e.g. labor can increase if there is an increase
in population.
 Increase in the capital, where more machines, factories and tools are produced.
 The quality of resources might have improved.

Leftward shift:

Reasons for leftward shift:

 Less resource available.
 The PPC can also shift inwards to the left due to war or natural disasters, which reduce a country’s resources.
Changes in the Slope of the PPC:

If there is a change in the quantity and quality of resources, which are specific to the production of one type of good,
then the entire PPC will not shift to the right, but only the slope will change.

E.g. Technological improvement in the production of product B has caused the maximum number of product B to
increase, but the maximum number of product A doesn’t change. It can also be the other way around i.e. where the
slope moves vertically upwards indicating an increase in the maximum number of product A.