A production possibilities curve (also called a production possibilities frontier) illustrates the possible combination of goods an economy can produce, subject to resource constraints. The graph also can show whether a society is using its full productive capacity. The production possibilities curve illustrates the economic principles of trade-offs (directing productive resources to produce more of one good necessarily means producing less of a second good) and scarcity (factors of production are not infinite). This economic diagram can be produced using the popular spreadsheet program Microsoft Office Excel.
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Open Excel to a blank worksheet, which you will use to enter your production data. Your production possibilities curve will illustrate the combinations of any two goods a hypothetical economy can produce. Real-life economies, of course, produce a large number of goods, but the production possibilities curve simplifies economic issues by depicting issues of scarcity and trade-offs in production between two goods.
Enter the values of your production data, using column A in your worksheet to represent one good and column B to represent the other. For this example, let's suppose your hypothetical economy produces pizza and wine. Any economy---whether real or hypothetical---can produce a limited number of goods because factors of production---land, labour and capital---are finite. Suppose your hypothetical economy, using its full productive capacity, can produce a maximum of 50 bottles of wine, 100 pizzas or some combination of the two.
Select all the values in your worksheet by clicking and dragging your mouse across columns A and B, which contain the quantities of pizza (column A) and wine (column B) your hypothetical economy can produce.
Open the Excel chart wizard by clicking the icon that resembles a small bar chart. It is located in the toolbar at the top of your Excel spreadsheet. After opening the chart wizard, select XY scatter from the "Chart Type" menu. Then click "Next," which will show the range of data you've selected for your chart. Click "Next" again.
Enter a chart title, and label the X and Y axes for your chart. The values in column A will correspond to the X axis (horizontal), while column B values will correspond to the vertical Y axis. So label your X axis "Pizza" and your Y axis "Wine." Then click "Next." You will then need to decide whether you want your completed chart displayed on a new worksheet in your Excel file or on the same page with the data you entered in columns A and B. After clicking your selection, click "Finish." Your completed production possibilities curve will appear on the worksheet you select.
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