The production possibility frontiers
Worksheet
Key terms
capital goods goods used as part of the production process, such as machinery
or factory buildings
consumer goods goods produced for present use (consumption)
production possibility frontier (PPF) a curve showing the maximum
combinations of goods and services that can be produced in a given period with
available resources
Figure 1 shows a production possibility frontier.
AS/Year 1 Macroeconomics
Pearson Edexcel A Level Economics A
1.1 The nature of economics
Figure 1
Opportunity cost
and the PPF
1
Explain the term ‘opportunity cost’.
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2
The PPF in Figure 1 shows the combinations of consumer goods and capital goods
that can be produced in Country A. Currently, 250 units of capital goods and 250
units of consumer goods are being made. What is the opportunity cost of making an
additional 50 units of capital goods?
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Theme 1: Introduction to markets and market failure
© Hodder & Stoughton Limited 2020
1
Country A decides to specialise even further in the production of capital goods and
produces 350 units of them. What is the opportunity cost of producing these
additional 50 units?
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4
Explain why the production possibility frontier in Figure 1 is curved rather than
linear.
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Figure 2 shows combinations of capital and consumer goods that could be produced by
Country A.
AS/Year 1 Macroeconomics
Pearson Edexcel A level Economics A
3
Figure 2
Capital and
consumer goods
5
Match each combination of goods (A to E) to its description below:
Description
Combination
The combination of goods where Country A specialises completely
in the production of capital goods.
Country A makes a combination of capital and consumer goods and
is completely efficient.
A combination of capital and consumer goods which is currently
unattainable with the given amount of resources and state of
technology.
The combination of goods where all resources are used in the
manufacture of consumer goods.
The combination of goods made if Country A does not use all of its
resources or uses them inefficiently.
Theme 1: Introduction to markets and market failure
© Hodder & Stoughton Limited 2020
2
In the longer run, the number of resources used to make both types of goods
increases in Country A. Combination B now becomes attainable and efficient. Draw
another production possibility frontier on Figure 2 and label it PPF2 to show this
scenario.
Theme 1: Introduction to markets and market failure
© Hodder & Stoughton Limited 2020
AS/Year 1 Macroeconomics
Pearson Edexcel A level Economics A
6
3