OCR A Level Economics: Opportunity cost, the PPF, specialisation and trade (H460) – Revision Notes

These notes condense the Opportunity cost and Specialisation and trade topics of the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021, Component 1 content. The whole specification is A Level; the text labels no content AS or Extension. Full explanations are in the study guide. All figures are invented.

Use the OCR Economics hub, the checklist and the free diagnostics to find weak spots.

Key definitions

Term	Meaning
Opportunity cost	The value of the best option passed over when choosing
Trade-off	Having to accept less of one thing to get more of another
PPC/F	The boundary of the largest output pairings of two goods, with every resource fully and efficiently employed and technology fixed
Productive efficiency	Producing on the frontier, so more of one good means less of the other
Specialisation	Concentrating on a narrow range of goods or services
Division of labour	Breaking production into tasks, with a separate worker on each
Barter	Direct exchange of goods and services for goods and services
Money	Anything generally accepted as payment: a medium of exchange

Opportunity cost: method

1. List the realistic alternatives.
2. Pick the best one that you did not choose.
3. State its value as the cost, in money or in units of the other good.
4. Add implicit costs when judging a business: owner’s time and own assets.

Reminder. A bakery has revenue £9,000 and costs £5,200: accounting profit £3,800. Rent forgone £1,400 and salary forgone £2,600 give opportunity costs of £4,000, so economic profit is -£200.

Reading a PPC/F

Feature	What it shows
A point on the curve	Productively efficient; attainable
A point inside	Attainable but inefficient: unemployed or misused resources
A point outside	Unattainable now: scarcity
Choosing a point	Choice; the points not chosen are the opportunity cost
The steepness	Opportunity cost of the good on the horizontal axis
Bowed outward	Increasing opportunity cost
Straight line	Constant opportunity cost

Straight-line example. An economy makes up to 60 phones or 30 laptops. One laptop costs 60/30 = 2 phones. One phone costs 30/60 = 0.5 laptop.

Bowed example (Country A).

Capital goods	0	10	20	30	40
Consumer goods	90	85	75	55	0
Opportunity cost of 1 capital good		0.5	1.0	2.0	5.5

Read it as consumer goods lost divided by capital goods gained: from 20 to 30 capital goods, 75 - 55 = 20, and 20/10 = 2.

Drawing tip. Label both axes with goods (not “price” and “quantity”), draw the curve concave to the origin, mark the points and name the shift. A bowed curve needs a reason: resources are better suited to one good than the other.

What shifts the PPC/F

Outward	Inward
More or better land and natural resources	Natural disaster or war
More labour: population, migration, participation	Resource depletion
Better quality labour: education, training	Falling capital stock
More capital: investment
New technology

Rules to remember:

• Technology in one good pivots the curve, not a parallel shift. If consumer goods output rises 20% (90 to 108) and the capital intercept stays at 40, the opportunity cost of capital rises 20% at each step (0.5 to 0.6, 1.0 to 1.2).
• Using idle resources moves the economy from inside the curve onto it. It is not a shift.
• Moving along the curve is a choice; moving the curve is a change in capacity.

Evaluating opportunity cost

Useful because	Limited because
Shows the full cost of a choice	The next best alternative can be hard to identify
Applies to households, firms and governments	Non-monetary values are hard to measure
Reveals hidden costs	Future values are uncertain
Shows that “free” provision has a cost	Assumes agents know and weigh the options

Judgement frame. Useful as a way of thinking and where options can be valued; imprecise for social and environmental choices; a guide, not a decision rule.

Specialisation and the division of labour

Gains. Practice, less switching time, tasks matched to skill, machines suited to narrow tasks, so higher output per worker and lower unit cost.

Costs. Boredom and lower motivation, loss of broad skills, occupational immobility, dependence on a single product or stage.

Reminder. A workshop of 6 workers paid £90 a day each makes 12 chairs when workers build whole chairs, and 20 when tasks are divided. Output rises by 8/12 = 66.7%. Labour cost per chair falls from 540/12 = £45 to 540/20 = £27, a fall of 40%.

Link to scarcity. More output from the same resources lets more wants be met, so it eases scarcity but cannot remove it.

From specialisation to exchange

1. A specialist makes a surplus of one good and none of the rest.
2. To consume a range of goods, they must trade.
3. Trade widens the market, which allows more specialisation.

Reminder. Two people with 40 hours each produce 40 kg of rice and 40 m of cloth in total without specialising. Specialising gives 60 kg and 60 m. Swapping 30 for 30 leaves each with 30 kg and 30 m, more than before.

Money and barter

Problem under barter	How money helps
Double coincidence of wants	Medium of exchange: sell for money, buy with money
No common measure of value	Unit of account: one price per good
Goods cannot be divided	Money is divisible
Goods spoil or lose worth	Store of value
Debts hard to define	Standard of deferred payment

Counting exchange rates. With n goods, barter gives n(n - 1)/2 rates; money gives n prices. For 12 goods: 66 against 12.

Limits of money. Inflation reduces its value; it needs trust in the issuer.

Must-know distinctions

• Trade-off and opportunity cost. The trade-off is the relationship (more of one, less of another). The opportunity cost is the value of the specific next best option lost.
• Movement along and shift of the PPC/F. A movement is a choice between goods. A shift is a change in the economy’s capacity.
• Productive efficiency and the right mix. Any point on the frontier is productively efficient. Whether it is the mix people want is a separate matter.
• Specialisation and division of labour. Specialisation can apply to a firm, region or country. Division of labour splits tasks within a production process.
• Accounting cost and opportunity cost. Accounting cost records money paid out. Opportunity cost adds the value of the best use of owned resources and time.

Building an evaluation paragraph

Point, development, then a judgement. For the division of labour: “Specialising tasks raises output per worker [point] because workers get faster and less time is lost switching [development]. However, repetitive tasks can lower motivation and quality [counterpoint]. The gain is largest for simple tasks in a large market, so the net effect on scarcity depends on the product and on how workers are managed [judgement].”

Quick self-test

1. Define opportunity cost.
2. A farmer can grow wheat (£6,000 profit), keep sheep (£7,500) or rent the land (£5,000). She grows wheat. What is the opportunity cost?
3. An economy can make 80 tables or 40 chairs on a straight-line frontier. What is the opportunity cost of one chair?
4. What does a point inside the PPC/F show?
5. Name two causes of an outward shift of the PPC/F.
6. Does an increase in employment shift the PPC/F? Explain.
7. A workshop’s output rises from 15 to 24 units after division of labour. Calculate the percentage rise.
8. Give two drawbacks of the division of labour.
9. How many exchange rates does barter need among 10 goods, and how many prices does money need?
10. State two functions of money and how each overcomes a problem of barter.

Answers

1. The value of the next best alternative forgone.
2. £7,500, the sheep, which is the best alternative. (Renting at £5,000 is lower.)
3. 80/40 = 2 tables.
4. Resources are unemployed or poorly used; the point is attainable but productively inefficient.
5. Any two: more labour, better education, more capital, new technology, discovery of resources.
6. No. It moves the economy from inside the curve towards it; capacity is unchanged.
7. (24 - 15)/15 × 100 = 60%.
8. Any two: boredom, loss of skills, occupational immobility, dependence on one product or stage.
9. 10 × 9/2 = 45 rates; money needs 10 prices.
10. Medium of exchange removes the need for a double coincidence of wants; unit of account removes the need for many exchange rates (store of value and standard of deferred payment are also acceptable).

Where marks are usually lost

• Naming two or three alternatives as the opportunity cost instead of the next best one.
• Drawing a PPC/F with price and quantity on the axes.
• Showing a rise in employment as an outward shift.
• Using a straight line, then claiming opportunity cost increases.
• Swapping the axes when calculating opportunity cost: the cost of a good is the amount of the other good lost per unit gained.
• Giving advantages of the division of labour with no limits, or limits with no judgement.
• Describing money as “valuable” without naming a function.
• Leaving out units or the working in percentage calculations.

Official syllabus

OCR, A Level in Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021, Component 1 content, areas of study Scarcity and choice (Opportunity cost; Specialisation and trade).