Confronting Scarcity: Choices In Production

Read this chapter to learn about the factors of production and the way they are combined in production. Use the production possibilities curve to represent the alternative combinations of goods and services that an economy can produce. Make sure to understand how the curve represents efficient, inefficient, and unattainable levels of production. Pay attention to how economic growth can be represented by shifts in the curve. Also in this chapter, learn about how economic systems compare.

2. The Production Possibilities Curve


  • A production possibilities curve shows the combinations of two goods an economy is capable of producing.
  • The downward slope of the production possibilities curve is an implication of scarcity.
  • The bowed-out shape of the production possibilities curve results from allocating resources based on comparative advantage. Such an allocation implies that the law of increasing opportunity cost will hold.
  • An economy that fails to make full and efficient use of its factors of production will operate inside its production possibilities curve.
  • Specialization means that an economy is producing the goods and services in which it has a comparative advantage.