The trade-off between two commodities along the Production Possibility Curve (PPC) shows

Step 1: Analyze the question The question asks what the trade-off between two goods along the PPC demonstrates.

Step 2: Explain the concept The Production Possibility Curve (PPC) shows the maximum combinations of two goods an economy can produce when all its resources are fully and efficiently used. Because resources are limited, producing more of one good means producing less of the other. Moving from one point to another along the curve means giving up some units of one good to gain more of the other. What you give up is the opportunity cost, which is the value of the next best alternative forgone.

Step 3: Evaluate the options

• A. Opportunity cost principle: Correct. The trade-off along the curve is exactly the amount of one good sacrificed to get more of the other.
• B. Scarcity principle: Scarcity is the underlying reason the PPC exists, and it is shown by the curve's very existence and its limit. The trade-off itself, though, is the cost of choosing, which is opportunity cost.
• C. Transferable output: Not a standard PPC concept.
• D. Unattainable combination: These are points outside the curve, not the trade-offs along it.
• E. Under-utilization of resources: These are points inside the curve. Points on the curve mean full employment.

Step 4: Answer The trade-off along the PPC illustrates the opportunity cost principle, so the answer is A.

Exam tip: Remember these PPC positions:

• On the curve = full and efficient use of resources, and trade-offs (opportunity cost)
• Inside the curve = under-utilization or unemployment
• Outside the curve = unattainable with current resources

When you see "trade-off" or "give up", think opportunity cost.