What does the Production Possibilities Curve demonstrate?

The Production Possibilities Curve (PPC) illustrates the maximum level of efficiency that an economy can achieve based on the allocation of its resources. It shows the trade-offs between two goods or services, indicating how much of one good must be sacrificed to produce more of another, given a fixed amount of resources. When all resources are utilized efficiently, the economy operates on the curve, demonstrating the highest possible output.

A point inside the curve indicates inefficiency, as it represents under-utilization of resources. Meanwhile, points outside the curve are unattainable with the current resources. The curve also reflects concepts such as opportunity cost, scarcity, and economic efficiency. By highlighting the trade-offs and the limits of production, the PPC serves as a fundamental tool in economics to analyze choices and opportunity costs in an economy.