How does a production possibilities curve demonstrate opportunity cost?

A production possibilities curve (PPC) is a graphical representation that illustrates the trade-offs between the production of two goods or services. It highlights the concept of opportunity cost, which is the value of the next best alternative that is foregone when making a choice.

When the PPC is plotted, each point on the curve represents a different combination of the two goods that can be produced using available resources and technology. Moving along the curve, if more of one good is produced, the economy must reduce the production of the other good. This trade-off demonstrates opportunity cost, as the amount of the second good that must be sacrificed to gain more of the first good is reflected in the slope of the curve. Therefore, the production possibilities curve visually encapsulates the idea that resources are limited and choices must be made, indicating the lost alternatives when selecting one option over another. This is the essence of opportunity cost in economics.