Production possibilities curve

Also known as the production possibilities frontier, the production possibilities curve is a graph that shows the points of maximum output of two products. It is based on the economizing problem and is representative of allocative efficiency.

Here's the lovely ASCII version of the graph:

          X
          |   X
          |      X
          |       
          |         X          Unattainable
       P1 |        
          |Attainable,  X
          |but
          |inefficient
          |               X
          |            
          |           
          +-----------------X--------------
            
                        P2

P1 = product 1; P2 = product 2

Any point along the curve (represented by the Xes) is at maximum output and maximum employment. It is the 'frontier' of production. Because resources are scarce, only so much of P1 can be made before the number of P2 decreases. If an X exists to the left of the curve, production is inefficient - not all resources are being used and/or being used to their maximum ability. if an X exists to the right of the curve, it really isn't there, because it isn't attainable - the curve is the frontier of production.