Economics for the IB Diploma

Chapter 1 Worksheet: Production possibilities curves (PPCs)

Part 1: Increasing opportunity cost PPCs

Study the PPC diagram below and answer the questions that follow.

1. Identify the points on Switzerland’s PPC that represent an efficient use of the country’s
land, labour and capital resources. Briefly explain what makes these points efficient.

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 2. Identify the points on Switzerland’s PPC that represent an inefficient use of the country’s
resources. Briefly explain what makes these points inefficient.

3. Calculate the per watch opportunity costs of moving from:

a. Point A to Point B

b. Point B to Point C

c. Point C to Point D

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 4. Explain why the per watch opportunity cost changes as output of watches increases
from 0 to 3000, then to 6000 and finally to 9000.

5. Calculate the opportunity cost of moving from:

a. Point X to Point Y

b. Point Y to Point C

6. Interpret the significance of the values you calculated in Question 5 above.

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 7. Point Z lies beyond Switzerland’s PPC. Explain what this means and what would be
necessary for Switzerland to achieve Point Z.

Part 2: Constant opportunity cost PPCs

Study the PPC diagram below and answer the questions that follow.

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 8. Calculate the per watch opportunity cost of moving from:

a. Point A to Point B

b. Point B to Point C

c. Point C to Point D

9. Explain how the opportunity cost of watches changes as output of watches increases
from 0 to 3000, then to 6000 and finally to 9000.

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 10. Briefly interpret the difference between the PPCs for chocolate and watches and for
watches and wall clocks. Why does the opportunity cost of producing more watches
change in such a different way as watch production increases in the two models?

Part 3: Lessons of the PPC

11. Explain how the PPC model demonstrates the following basic economic concepts:

a. The basic economic problem

b. Trade-offs, choices and opportunity costs

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 c. Efficiency

d. Inefficiency

e. Economic growth

12. Does the PPC tell a country what the best combination of two goods that it should
produce is? Explain.

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