IB Economics HLTopic 1 — Introduction to EconomicsPaper 1 & 2Diagram skill~10 min read
The Production Possibilities Curve
This is your first proper economics diagram, and it is worth getting right, because it says three things at once: resources are scarce, choices must be made, and every choice has an opportunity cost. It is also one of the easiest diagrams to draw badly — so we will build it step by step and then read every part of it.
📚 What you need to know
The PPC shows the maximum combinations of two goods an economy can produce using all its resources efficiently.
Points on the curve = full, efficient use of resources.
Points inside = inefficient; some resources are idle or wasted.
Points outside = unattainable with current resources and technology.
Moving along the curve shows opportunity cost: more of one good means less of the other.
A curve bowed outwards shows increasing opportunity cost. A straight line shows constant opportunity cost.
A shift outwards is economic growth; a shift inwards is economic decline.
Building the diagram
Imagine a small economy that can only make two things: machines (capital goods) and food (consumer goods). Put machines on the vertical axis and food on the horizontal axis.
If it throws every resource at food, it makes 400 units of food and no machines. If it throws everything at machines, it makes 120 machines and no food. Those are the two end points. The curve joins them, and every point along it is a different way of splitting the same resources.
Points B, C, D and A all use every resource fully — they just use them differently. E wastes resources. F is simply not possible yet.
Reading the three zones
Where the point is
What it means
What is happening in the economy
On the curve
Productively efficient
Every worker, machine and field is in use. You cannot get more of one good without losing some of the other.
Inside the curve
Inefficient
Unemployment, idle factories, poor organisation. More of both goods is possible.
Outside the curve
Unattainable
Not possible with today’s resources and technology. Only growth can reach it.
A point inside the curve is the only situation where you can get more of both goods at no cost. That is why fixing unemployment is such a popular policy: it is a rare free lunch.
Opportunity cost on the curve
Slide along the curve and you are trading one good for the other. From C to D the economy produces more food but fewer machines:
Reading the move C → D
Food: 240 → 320, a gain of 80
Machines: 96 → 72, a loss of 24
Opportunity cost of 80 extra food = 24 machines
Divide and you get the cost per unit: 24 ÷ 80 = 0.3 machines for each extra unit of food. Doing that division is how you turn a diagram question into a numerical answer, and it is exactly what higher-mark questions ask for.
Why the curve is usually bowed outwards
Here is the bit that confuses people. Why is the PPC curved rather than straight?
Because resources are not equally good at everything. Start with an economy making only machines. To make its first food, it moves over the workers and land that are best suited to farming — and it barely loses any machine output. But as it keeps shifting, it has to move over engineers and factory sites that are terrible at farming. Each extra unit of food now costs more and more machines.
That is increasing opportunity cost, and it is what bends the line into a curve. If the two goods used identical resources — say scarves and hats, both made by the same workers with the same cloth — the swap rate would never change, and the PPC would be a straight line: constant opportunity cost.
Straight line: the resources swap perfectly between the two goods. Bowed out: they do not, so the trade-off gets worse the further you push.
Shifting the whole curve
Moving along the curve just reallocates what you already have. Moving the whole curve is a different event entirely: the economy’s productive potential itself has changed.
An outward shift means the economy could now produce more of both goods. Whether it actually does is a separate question.
🧩 What shifts it which way
Outwards — more resources: population growth, immigration, new oil discovered, more factories built.
Outwards — better resources: training and education, better technology, improved healthcare.
Inwards — fewer resources: war, natural disaster, emigration of skilled workers, resources running out.
Not a shift at all — a recession or a rise in unemployment. Resources still exist; they are just idle, so the economy moves to a point inside the curve.
The one that catches everybody: unemployment does not shift the PPC inwards. The workers still exist. Show it as a move to a point inside the existing curve.
Assumptions behind the model
Only two goods are produced. Real economies make millions, but two is what fits on a page.
Resources are fixed in quantity and quality at this moment in time.
Technology is fixed. Change it and the curve shifts.
All resources are fully and efficiently used anywhere on the curve.
Each of these gives you a ready-made evaluation point. In reality technology improves constantly, so a curve drawn today is out of date almost immediately.
Worked examples
WORKED EXAMPLE 1
An economy moves from point C (240 food, 96 machines) to point D (320 food, 72 machines). Calculate the opportunity cost of one extra unit of food. [3]
Step 1: find the gain
Food rises by 320 − 240 = 80 unitsStep 2: find the loss
Machines fall by 96 − 72 = 24 machinesStep 3: divide loss by gain24 ÷ 80 = 0.3Opportunity cost = 0.3 machines per unit of foodAlways divide the thing you gave up by the thing you gained, then state the units.
WORKED EXAMPLE 2
A country is producing at point E, inside its PPC. Explain two things this tells you. [4]
Point 1: resources are not fully used
Some workers, machines or land are idle — unemployment or spare capacity.
Point 2: there is no trade-off right now
The economy could produce more of both goods by putting idle resources back to work.
Add the technical word
Production is productively inefficient.
Idle resources + more of both goods possible“There is no opportunity cost of moving from E to the curve” is a lovely sentence to include.
WORKED EXAMPLE 3
For each event, say whether the PPC shifts outwards, shifts inwards, or does not shift: (a) a flood destroys a third of farmland; (b) unemployment rises from 4% to 9%; (c) a new fertiliser doubles crop yields; (d) skilled workers emigrate in large numbers. [4]
Ask each time: has the QUANTITY or QUALITY of resources changed?
(a) Land is lost → shifts inwards
(b) Resources still exist, just unused → no shift — move to a point inside
(c) Technology improves the quality of land → shifts outwards
(d) Labour is lost → shifts inwardsin, no shift, out, in(b) is the classic trap. Losing a job does not delete the worker.
💡 Exam tip
Label both axes with the actual goods and the word “quantity”. Unlabelled axes lose marks before you write a word.
Draw the curve bowed outwards unless the question tells you the goods use identical resources.
Mark the point you are talking about with a letter and use that letter in your writing.
Use dashed guide lines from the axes to any point you refer to.
For growth, draw the new curve outside and label the shift with an arrow. Do not rub the old one out.
Capital goods on one axis is the useful version for essays: producing more capital today shifts the curve out tomorrow.
⚠ Common mix-up
Shifting the curve for unemployment. Move inside the curve instead.
Thinking a point on the curve is “best”. Every point on the curve is efficient; which one is best is a value judgement.
Confusing a movement along with a shift. Along = reallocating what you have. Shift = the potential itself changed.
Saying the outward shift means output will rise. It means it could. The economy might stay inside the new curve.
Getting the division upside down when calculating opportunity cost. It is what you lost ÷ what you gained.
Drawing the curve bowed inwards (towards the origin). That would mean opportunity cost falls as you specialise, which is the opposite of the usual story.
Forgetting that only one axis shifts in some questions — if a new technology only helps farming, the curve pivots outwards on the food axis only.
Up next: Building and Using Economic Models — how the PPC fits into the wider toolkit, plus the circular flow of income.
Want this explained one-to-one?
Book a free session with an experienced IB Economics tutor and get your trickiest topics made simple.
