How does a production possibilities curve demonstrate opportunity cost?

The production possibilities curve (PPC) effectively illustrates opportunity cost by showcasing the trade-offs between different combinations of two goods that an economy can produce. The curve represents various points that reflect the maximum output levels that can be achieved for one good, given the production of another, under the constraint of limited resources.

As an economy moves along the curve to produce more of one good, it must reduce the production of another good, thereby incurring an opportunity cost. This concept highlights that resources are scarce and that choosing to allocate them to produce more of one product comes at the expense of forgoing the production of another product. Thus, the PPC visually illustrates this fundamental economic principle through its shape and the trade-offs displayed along the curve.

While the other options may relate to production or costs in a broad sense, they do not capture the specific relationship between trade-offs and opportunity costs that the PPC uniquely demonstrates. For example, discussing price ratios or listing external costs does not directly communicate how choices made in production affect overall opportunity costs.