The Basic Economic Problems(continued)

Production Possibilities Curve

Individuals are limited in what they can buy because the recources available to them are limited. The societies and countries too are limited in what they can produce with the given amount of resources. Production possibilities curve is a graphical representation of a combination of two goods that a country can produce with a given amount of resources.

The above production possibilities curve shows the combinations of different levels of tons of steel and tons of aluminium that a particular country can produce. If the country decides to produce 2000 tonnes of aluminium, it has to give up production of steel completely because all the available resources are employed for the production of aluminium. Alternatively, to increase the production of steel from 0 to 2000, the country has to decrease the production of aluminium from 2000 to 1000. This represents opportunity cost

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