Moving along a PPC shows opportunity cost

G3 Economics - syllabus K343, 2027

What this lesson teaches

  • I can explain what moving along a PPC shows about opportunity cost.

    Syllabus K343, 1.4.3. Movements along a PPC: the significance of movements along a PPC and opportunity cost

Make a guess

An economy on its PPC wants to make more healthcare services. Can it do so without making less of anything else?

  1. Yes, because healthcare is a service, not a good.
  2. No. It must move resources away from another good.
  3. Yes, by working everyone a little harder.
Show the answer

No. It must move resources away from another good.

On the curve, all resources are already in use. Making more of one good means making less of the other, which is the opportunity cost.

Moving along a PPC means producing more of one good by giving up some of the other.

When an economy is on its PPC, it can only make more of one good by moving resources away from the other. A movement along the curve shows this trade-off.

The amount of the other good given up is the opportunity cost. In the diagram, moving from A to B raises consumer goods from X0 to X1 but cuts capital goods from Y0 to Y1. The fall in capital goods is the opportunity cost of the extra consumer goods.

The PPC is usually bowed out from the origin. This is because resources are not equally good at making both goods. To make more consumer goods, the economy must use resources that are better at making capital goods. So each extra unit of consumer goods costs more capital goods.

The choice between points matters for the future. Producing more capital goods now, such as machines and infrastructure, can help the economy grow later.

Movement along a PPC
Reallocating resources between the two goods.
Opportunity cost on a PPC
The amount of the other good given up.
Why bowed out
Resources are not equally suited to both goods, so opportunity cost rises.

Worked example: Calculating opportunity cost from a PPC

Suppose a country moves from producing 100 machines and 400 tonnes of food to 70 machines and 500 tonnes of food.

  1. Identify the gain: food rises by 500 - 400 = 100 tonnes.
  2. Identify what is given up: machines fall by 100 - 70 = 30.
  3. State the opportunity cost: the extra 100 tonnes of food cost 30 machines.
  4. Per unit: each extra tonne of food costs 30 / 100 = 0.3 machines.

Try it step by step

Problem 1

An economy moves along its PPC from 50 tonnes of rice and 10 bolts of cloth to 40 tonnes of rice and 30 bolts of cloth.

Show the working
  1. Gain in one good: Cloth rises from 10 to 30: a gain of 20 bolts.
  2. Loss of the other good: Rice falls from 50 to 40: a loss of 10 tonnes.
  3. Opportunity cost per unit gained: Opportunity cost = 10 / 20 = 0.5 tonnes of rice per bolt of cloth.

Problem 2

A factory moves from making 80 phones and 20 laptops a day to 60 phones and 30 laptops.

Show the working
  1. Gain in one good: Laptops rise from 20 to 30: a gain of 10.
  2. Loss of the other good: Phones fall from 80 to 60: a loss of 20.
  3. Opportunity cost per unit gained: Opportunity cost = 20 / 10 = 2 phones per laptop.

Problem 3

A fishing village moves from catching 120 tonnes of fish and building 0 boats to catching 90 tonnes of fish and building 15 boats.

Show the working
  1. Gain in one good: Boats rise from 0 to 15: a gain of 15.
  2. Loss of the other good: Fish fall from 120 to 90: a loss of 30 tonnes.
  3. Opportunity cost per unit gained: Opportunity cost = 30 / 15 = 2 tonnes of fish per boat.

Watch out for this

A movement along the PPC means the economy has grown.

A movement along the curve changes the mix of output with the same resources. Growth in productive capacity is an outward shift of the whole curve.

Check your understanding

Point A on a PPC is 40 hospitals and 100 schools. Point B is 50 hospitals and 80 schools. Moving from A to B, what is the opportunity cost of the 10 extra hospitals?

  1. 20 schools, the schools given up to build them.
  2. No schools, since A and B are both efficient points.
  3. 80 schools, the number still built at point B.
Show the answer

20 schools, the schools given up to build them.

Right. Schools fall from 100 to 80, so the 10 extra hospitals cost 20 schools.

Check your understanding

An economy can produce these combinations of food and clothing: A 100 food, 0 clothing; B 90 food, 20 clothing; C 70 food, 40 clothing; D 40 food, 60 clothing. What is the opportunity cost of moving from B to C?

  1. 70 units of food
  2. 10 units of food
  3. 20 units of food
  4. 20 units of clothing
Show the answer

20 units of food

Right. Food falls from 90 to 70, so 20 units of food are given up for 20 more clothing.

Check your understanding

Using the same combinations, what is the opportunity cost of each extra unit of clothing when moving from C (70 food, 40 clothing) to D (40 food, 60 clothing)?

  1. 1.5 units of food
  2. 2 units of food
  3. 30 units of food
  4. 0.67 units of food
Show the answer

1.5 units of food

Right. 30 food is given up for 20 clothing: 30 / 20 = 1.5 food per unit of clothing.

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