Any point on the curve (A) is productively efficient. Points inside the curve (B) show unused or misallocated resources. Points outside the curve (C) are unattainable unless the economy grows — shifting the whole curve outward.
Step 2 of 6
Why the PPC Bows Outward
Resources aren't equally good at producing every good. As an economy produces more and more of one good, it must sacrifice increasingly large amounts of the other — that's increasing opportunity cost, and it's why the curve bows outward instead of being a straight line.
Step 3 of 6
Comparative Advantage
Compare opportunity costs, not raw output. The producer with the lower opportunity cost of a good has the comparative advantage in it — that's the producer who should specialize in making it.
Step 4 of 6
The Demand Curve
The demand curve slopes downward — the law of demand. A change in the good's own price causes a movement along D1. A change in income, tastes, or another determinant causes the entire curve to shift (to D2, for example).
Step 5 of 6
The Supply Curve
The supply curve slopes upward — the law of supply. Lower input costs or better technology shift the whole curve right (to S2), meaning producers supply more at every price.