The production possibility curve

Now let us consider how the economic problem can be illustrated by means of a production possibility frontier, or curve in terms of graphics. This diagram is actually a graph. Like many diagrams in economics it shows a simplified picture of reality. The graph is based on the data shown in Table 2.1. We assume that Country A allocates all its resources – land, labour and capital – to produce just two goods, food and clothing. The table shows all possible combinations that could be produced over a year.

Table 2.1Maximum possible combinations of food and clothing thatcan be produced in a given time period.

The information in the table can be transferred to a graph (Figure 2.1): units of food are measured on the vertical axis and units of clothing on the horizontal axis. The curve also shows all combinations of the two goods that can be produced.

Figure 2.1A Production Possibility Curve.