The production possibilities curve (PPC) of an economy illustrates which basic principle about trade offs when all resources are fully employed?

Introduction / Context:
The production possibilities curve, also called the production possibilities frontier, is a fundamental tool in economics. It shows the maximum combinations of two goods that an economy can produce given its available resources and technology, assuming full and efficient use of those resources. The PPC is used to illustrate key ideas such as scarcity, choice and opportunity cost. The question asks which basic principle about trade offs is illustrated by the PPC when all resources are in use.

Given Data / Assumptions:

• The economy has a fixed quantity and quality of resources and a given level of technology.
• All resources are fully employed and used efficiently when the economy operates on the PPC.
• The PPC is typically drawn as a downward sloping curve, often bowed outward.
• The question focuses on what must happen if the economy wants to produce more of one good.

Concept / Approach:
The PPC shows combinations of two goods that can be produced when resources are fully utilised. Because resources are limited and have alternative uses, producing more of one good requires diverting some resources away from producing the other good. This means that to increase the output of one item, the economy must reduce the output of the other item. This trade off reflects the concept of opportunity cost: the amount of one good that must be sacrificed to produce more of the other. Therefore, the basic principle illustrated by the PPC is that if all resources are in use, more of one good can be produced only if less of another good is produced.

Step-by-Step Solution:
Step 1: Visualise the PPC as a downward sloping curve between two goods, say guns and butter.Step 2: Consider a point on the curve where the economy is fully using its resources.Step 3: To move to another point with more of one good, the economy must shift resources away from the other good, which reduces its output.Step 4: Match this idea with the option that states that more of one good can be produced only if less of another is produced when all resources are in use, and select that option as correct.

Verification / Alternative check:
You can verify this by thinking of a simple numerical example. Suppose with its available resources the economy can produce either 100 units of good X and 0 of good Y, or 80 of X and 20 of Y, or 60 of X and 40 of Y, and so on along the PPC. If the economy is at the point producing 80 of X and 20 of Y, and it wants to produce 40 of Y instead, it will have to reduce production of X to, say, 40 units. This sacrifice of X in order to gain more Y is the opportunity cost and is captured by the shape of the PPC.

Why Other Options Are Wrong:
Option B is wrong because as more of one good is produced, opportunity cost usually increases, not decreases, so larger sacrifices of the other good are required at the margin. Option C is incorrect because the PPC does not guarantee automatic full employment; economies can operate inside the PPC when resources are idle. Option D is also wrong because production capacity does not always increase in exact proportion to population; it depends on technology, capital accumulation and productivity, not just population size. Only option A captures the essential trade off illustrated by the PPC.

Common Pitfalls:
Students sometimes think that the PPC guarantees that the economy is always on the curve, but in reality economies can be inside the curve because of unemployment or inefficiencies. Another mistake is to overlook that opportunity cost generally increases as more of one good is produced, which is shown by the bowed outward shape of many PPCs. To handle exam questions, focus on the core message: with full resource use, you cannot get more of one good without giving up some of another, and this is exactly what the PPC is designed to show.

Final Answer:
The production possibilities curve illustrates that if all resources are in use, more of one good can be produced only if less of another good is produced.