Economists believe that production possibilities frontiers
a. never have a bowed shape.
b. rarely have a bowed shape.
c. often have a bowed shape.
d. always have a bowed shape.
The correct answer and explanation is :
The correct answer is:
c. often have a bowed shape.
Explanation:
A Production Possibilities Frontier (PPF) is a graphical representation that shows the maximum possible output combinations of two goods or services an economy can produce, given its resources and technology. The shape of the PPF depends on the opportunity cost of producing one good over another.
PPFs are often bowed outward (concave to the origin) because resources are not equally efficient in producing all goods. This phenomenon is due to the law of increasing opportunity costs, which states that as more of one good is produced, the opportunity cost of producing additional units of that good increases.
Why is the PPF Often Bowed Outward?
- Specialization of Resources: Different resources (such as land, labor, and capital) have varying efficiencies in producing different goods. For example, land that is best suited for farming may not be ideal for building factories. As more resources are shifted from one industry to another, they become less efficient, increasing the opportunity cost.
- Diminishing Returns: When an economy reallocates resources from producing one good to another, it must use resources that are less suited for the new good. This leads to diminishing returns, making the PPF curve bowed outward.
- Real-World Applications: Most economies experience increasing opportunity costs because resources are specialized. For example, shifting highly trained engineers from the technology sector to agriculture would lead to inefficiencies, making the PPF concave.
When Is the PPF Not Bowed?
- If resources are perfectly adaptable for producing both goods, the PPF would be a straight line, indicating constant opportunity costs.
- In rare cases, if an economy has identical efficiency across industries, the PPF might be linear.
Thus, in reality, production possibilities frontiers often have a bowed shape, but not always.