What does a production possibilities curve illustrate?

A production possibilities curve illustrates different combinations of two goods that can be produced given the available resources and technology within an economy. This curve provides insight into the trade-offs that a society faces when allocating its limited resources between two competing goods.

The shape of the curve often reflects the law of increasing opportunity costs, which indicates that as production of one good increases, the opportunity cost of producing additional units of that good also increases. This means that to produce more of one good, increasingly larger amounts of the other good must be sacrificed. Therefore, the curve helps visualize the potential output of an economy and illustrates concepts like efficiency, scarcity, and opportunity costs.

Knowing this, options that discuss the relationship between price and quantity supplied, the impact of consumer preferences on market equilibrium, or the distribution of income across consumers do not align with the primary function of a production possibilities curve. They pertain to other economic concepts and models but do not specifically focus on production capabilities and trade-offs between goods.