4.1.1.5 Production Possibility Diagrams – AQA A-level Economics Notes

Written by Tom Furber, economics tutor | Published 30th January 2022 | Updated 10th August 2026.

Contents

What is a production possibility frontier (PPF)?

A production possibility frontier (PPF) shows the maximum combinations of output of two different goods that can be produced.

The PPF diagram is shown below:

  • For example, assume the economy can only produce two goods: planes and cars.
  • The diagram shows the PPF for planes and cars.
  • The horizontal axis shows the number of cars and the vertical axis shows the number of planes.
Cars and planes PPF diagram with curved PPF.

The PPF shows the possible ways that an economy can allocate its resources. In other words, its four factors of production (land, labour, capital and enterprise).

  • For example, the economy could produce all planes and no cars.
  • Similarly, the economy could produce all cars and no planes.
  • The economy can produce somewhere in-between: Some planes and some cars.

Tutor commentary

Note the term production possibility frontier (PPF) refers to the curve labelled PPF in the diagram above.

It is a frontier or “boundary“, showing the maximum possible production of cars and planes.

What about points inside or beyond the PPF?

  • The economy could choose to allocate its resources at a point inside the PPF too.
    • These are also obtainable outcomes, although not the maximum that can be produced.
  • Points beyond (up or to the right of) the PPF are unobtainable.
    • They are beyond the maximum possible production of the two goods.

Opportunity cost and trade-offs on the PPF

The PPF can be used to show opportunity cost and tradeoffs:

  • Suppose the economy moves from W to X.
  • This means the number of cars produced increases from 0 to 5, an increase of 5.
  • However, the number of planes produced decreases from 15 to 14, a decrease of 1.
  • So, to produce 5 more cars, there is an opportunity cost of 1 plane.
    • The economy must give up production of 1 plane.
    • On the PPF, there is therefore a tradeoff between plane production and car production.
PPF and increasing opportunity cost.

Note that the opportunity cost varies along the PPF:

  • Suppose the economy goes from X to Y, producing 5 more cars. This requires a greater sacrifice of 3 planes.
  • Suppose the economy moves from point Y to Z, again producing 5 extra cars. Now, 11 planes must be given up.

In other words, the opportunity cost of producing an extra car increases, as the number of cars increases.

Tutor commentary

Why is the PPF drawn curved?

Built into this is an assumption of diminishing marginal returns, which is covered later on in the course.

For now, it means that, as the amount of inputs into cars increases, it gets more and more difficult to produce extra cars.

For instance, you could imagine workers getting in the way of one another, slowing down the production process.

This means, to produce an extra car, even more inputs must be transferred over from plane production each time.

So the number of planes falls more and more rapidly, each time an extra car is produced on the PPF.

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Unemployment of economic resources and short-run economic growth

Points inside the PPF, show the unemployment of economic resources. For example at point A in the diagram below, there may be unused capital or labour.

In this case, there is no longer an opportunity cost of increasing car production:

  • There could be an increase in production of cars without a fall in the production of planes, moving the economy back to the PPF.
  • This means there is not necessarily a trade-off between car and plane production when inside the PPF.
Point inside versus point on the PPF.

Short-run economic growth can occur when the economy moves closer to the existing PPF.

For example, hiring the unemployed workers to engage them in production could achieve this.

If the economy moves from point A to point B in the diagram above, this would count as short-run economic growth.

Long-run economic growth

A shift outwards of the PPF shows long-run economic growth as in the diagram below.

This could occur because:

  • There are more factors of production (for example increasing immigration)
  • Or because of higher productivity (better use of existing factors of production).

Tutor commentary

Productivity measures the output per unit of input.

So, suppose that workers become more skilled through extra training.

This could increase the number of cars and planes (outputs) that can be produced with the same number of workers (inputs). So productivity would increase.

PPF shift outwards due to long-run economic growth.

What if firms become more productive at producing one good but not the other?

For example what if the productivity in cars rises but productivity in plane production remains the same?

In this case the PPF shifts horizontally but not vertically.

  • If the economy put all its resources into planes, it would still get the same level of production.
  • However, if instead, all resources went to cars, there would be a greater level of production now than originally.
  • Note the opposite would apply if only plane productivity increased. Then the PPF would shift vertically but not horizontally.
PPF shifts horizontally but not vertically.

Productive vs allocative efficiency

All points on the PPF (the boundary) are productively efficient.

  • This means the economy is producing the maximum output possible given the available inputs.
  • Points inside the PPF are productively inefficient. The economy would not be making full use of its available inputs to maximise output.

Not all points on the boundary are allocatively efficient.

  • Allocative efficiency = social welfare is being maximised.
    • Social welfare is a combined measure of the welfare of all agents in society.
    • It takes into account not only producer welfare, but also consumer welfare in this case.
  • Suppose consumers mostly prefer cars over planes.
    • Then producing mostly planes may not maximise the total welfare of the consumers and producers. 

Practice question on PPFs for AQA Economics students

Here is a practice question on PPFs.

It is suitable for AQA Economics students, featuring a mini-extract followed by a 15 mark question.

Mini-extract: Henry Ford’s use of the moving assembly line in car production, starting in 1913, in the US enabled the Ford motor company to boost its productivity. The time taken to assemble a Model T Ford was cut from 12.5 hours to 93 minutes.

Sources: miscellaneous.

Question: Explain how a production possibility diagram can illustrate opportunity cost and economic growth. (15 marks)

Hints: Structure and Essay Plan.

Structure of a 15 marker.

A typical 15 mark response has the following structure:

  • Short introduction defining key terms.
  • Analysis paragraph 1.
  • Analysis paragraph 2.
  • If the previous two paragraphs were not detailed, a third analysis paragraph can be added.

Make sure to refer to your own real world examples throughout or those mentioned in the mini-extract.

PPFs 15 marker essay plan.

For this question on PPFs, you could structure your essay as follows:

  • Introduction – define PPF and opportunity cost.
  • Analysis paragraph 1 – explain how the PPF shows opportunity cost.
    • Refer to an example of the UK giving up manufacturing production and producing more services over time.
  • Analysis paragraph 2 – explain how the PPF shows (long-run) economic growth.
    • Refer to an example of an economy growing or data on the UK’s economic growth rate.
  • Analysis paragraph 3 – explaining how opportunity cost may vary along the PPF and why.
    • Refer to an example of a firm getting too large and its rate of technological progress or productivity slowing. Can you think of one?

Other points could work, for instance explaining short-run economic growth or growth in one industry. There are many structures and ways to score highly.

For more on 15 marker structures, I recommend my other exam technique resources for AQA Economics, such as my model answers.

Demand and Price Elasticity of Demand
Introduction to AQA Economics: Scarcity and Methodology
All AQA Microeconomics Resources
All AQA Economics Resources
Economics A-Level tutoring

About the author

Tom Furber

Helping economics students online since 2015. Previously an economist, I now provide economics resources on tfurber.com and tutor A Level and undergraduate economics students. Read more about me here.