2281 · 1.4
Practice and worked examples for 2281 Production possibility curve diagrams. Short previews only — attempt the full question in MarkScheme against the official scheme.
A country moves from a point inside the PPC to a point on the PPC. What has changed?
Productive efficiency improved — previously unemployed resources are now used.
Output of at least one good increases without reducing the other (or both increase).
An economy can produce consumer goods and capital goods. The table below shows some of its production possibilities.
| Combination | Consumer Goods (units) | Capital Goods (units) |
|---|---|---|
| A | 100 | 0 |
| B | 90 | 20 |
| C | 70 | 40 |
| D | 40 | 60 |
| E | 0 | 80 |
Calculate the opportunity cost of increasing the production of capital goods from 40 units to 60 units.
Step 1: Identify the change. The economy moves from combination C to combination D to increase capital goods production from 40 to 60 units.
Step 2: Identify what is given up and what is gained.
Step 3: Apply the opportunity cost formula. Opportunity Cost = (What is given up) / (What is gained)
Step 4: Calculate the final answer. Opportunity Cost = 30 consumer goods / 20 capital goods = 1.5 consumer goods.
Final Answer: The opportunity cost of producing one additional capital good (when moving from C to D) is 1.5 consumer goods.