The production possibilities curve illustrates the basic principle which states that:

The production possibilities curve illustrates the basic principle which states that:

A. the production of more of any one good will in time require smaller and smaller sacrifices of other goods.

B. an economy will automatically seek the level of output at which all of its resources are employed.

C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

D. an economy’s capacity to produce increases in proportion to its population size.

Answer: C. If all the resources of an economy are in use more of one good can be produced only if less of another good is produced.

The full production possibilities curve is an economic tool that represents the opportunity cost of a country’s choices when operating efficiently. It illustrates the maximum levels that two goods can be produced for a particular situation by focusing on resources and technology. When an economy functions on this curve, all resources are being utilized efficiently in the economy. Resources are scarce, thus for the production of one good to be enhanced, factors of production must shift from another good hence its production is reduced. This shows how the resources are limited and thus availability means that one has to always make choices on the options available. The shape of the curve generally tends to open out from the point of origin, which is the key implication of the law of increasing opportunity cost. The PPC is very useful in explaining the conditions of economic efficiency, Opportunity Cost and the measurement of the implications of various decisions about resource allocation.