1
SHAPE OF PRODUCTION POSSIBILITY CURVE:
Shape 1: Concave
Good Y
A P
Q
0 Good X
B
The slope of the production possibility curve is the Marginal Rate of Transformation (MRT)
which indicates the rate at which one good is being transformed into another, not physically, but by
transferring resources from one good to another good. As we move along the production possibility
curve through points P and Q downwards, slope or steepness of each tangent through these points
increases. Thus, the production possibility curve takes a concave shape, indicating increasing
opportunity cost, that is, the economy is willing to give up more Y for an additional unit of X. There is
increasing opportunity cost because of diminishing returns.
Note: slope of PPC = MRTYX = change in Y = opportunity cost of producing an additional unit of X in
change in X terms of Y.
Shape 2: Convex
Good Y
A
P
Q
0 Good X
B
As we move downwards from P to Q, the steepness of each gradient falls, i.e, the gradient
becomes flatter. In other words, the slope of the production possibility curve diminishes as we move
downwards. This means that the MRTYX keeps falling, and thus, the opportunity cost is decreasing
(increasing returns). The economy is now willing to give up less units of Y for the same additional unit
of X.
, 2
Shape 3: Linear
Good Y
A
P
Q
0 B Good X
Here the slope of the production possibility curve remains constant. The MRTYX is constant or
unchanged as we moved downwards the curve from left to right. Thus, the production possibility curve
becomes linear or straight line. The opportunity cost also remains constant (constant returns). This
means that the economy is willing to give up the same amount of Y for the same additional unit of X.
SHIFT OF THE PRODUCTION POSSIBILITY CURVE:
Good Y
A1
A c
a
b
0 Good X
B B1
If the economy’s capacity to produce goods is increasing, the production possibility curve will be
moving outwards over time. This indicates that economic growth has taken place. Economic growth
shifts the boundary outward and makes it possible to produce more of all goods. Before growth points a
and b were on the production possibility curve and point c was unattainable. After growth, point c is
attainable.
FACTORS RESPONSIBLE FOR THE SHIFT:
1. Improvement in the state of technology
2. Increase in the labour force and labour productivity
SHAPE OF PRODUCTION POSSIBILITY CURVE:
Shape 1: Concave
Good Y
A P
Q
0 Good X
B
The slope of the production possibility curve is the Marginal Rate of Transformation (MRT)
which indicates the rate at which one good is being transformed into another, not physically, but by
transferring resources from one good to another good. As we move along the production possibility
curve through points P and Q downwards, slope or steepness of each tangent through these points
increases. Thus, the production possibility curve takes a concave shape, indicating increasing
opportunity cost, that is, the economy is willing to give up more Y for an additional unit of X. There is
increasing opportunity cost because of diminishing returns.
Note: slope of PPC = MRTYX = change in Y = opportunity cost of producing an additional unit of X in
change in X terms of Y.
Shape 2: Convex
Good Y
A
P
Q
0 Good X
B
As we move downwards from P to Q, the steepness of each gradient falls, i.e, the gradient
becomes flatter. In other words, the slope of the production possibility curve diminishes as we move
downwards. This means that the MRTYX keeps falling, and thus, the opportunity cost is decreasing
(increasing returns). The economy is now willing to give up less units of Y for the same additional unit
of X.
, 2
Shape 3: Linear
Good Y
A
P
Q
0 B Good X
Here the slope of the production possibility curve remains constant. The MRTYX is constant or
unchanged as we moved downwards the curve from left to right. Thus, the production possibility curve
becomes linear or straight line. The opportunity cost also remains constant (constant returns). This
means that the economy is willing to give up the same amount of Y for the same additional unit of X.
SHIFT OF THE PRODUCTION POSSIBILITY CURVE:
Good Y
A1
A c
a
b
0 Good X
B B1
If the economy’s capacity to produce goods is increasing, the production possibility curve will be
moving outwards over time. This indicates that economic growth has taken place. Economic growth
shifts the boundary outward and makes it possible to produce more of all goods. Before growth points a
and b were on the production possibility curve and point c was unattainable. After growth, point c is
attainable.
FACTORS RESPONSIBLE FOR THE SHIFT:
1. Improvement in the state of technology
2. Increase in the labour force and labour productivity
