As we move along a bowed-out production possibility frontier, producing more tacos and less pizza, the opportunity cost of a pizza __.
A) increases
B) remains the same
C) decreases
D) increases and then decreases
106) The production possibilities frontier bows outward because
A) opportunity costs are decreasing as the production of a good increases.
B) opportunity costs are increasing as the production of a good increases.
C) opportunity costs are fixed as the production of a good increases.
D) resources are of uniform quality.
The Correct Answer and Explanation is:
Correct Answers:
- 105) A) increases
- 106) B) opportunity costs are increasing as the production of a good increases
A Production Possibilities Frontier (PPF) is a curve that shows the maximum possible output combinations of two goods or services an economy can achieve using all resources efficiently. When the PPF is bowed outward, it reflects the concept of increasing opportunity costs.
Question 105:
As we move along a bowed-out PPF and produce more tacos and less pizza, the opportunity cost of a pizza increases. This is because the resources used to produce pizza (like skilled chefs or special ovens) may not be as well-suited for taco production. As we reallocate more of these resources from pizza to tacos, each additional unit of tacos requires giving up more and more pizza. This is the law of increasing opportunity cost — the more of one good you produce, the more of the other you have to sacrifice. Therefore, the opportunity cost of pizza increases as we move along the curve and focus more on tacos.
Question 106:
The PPF bows outward because of increasing opportunity costs. Not all resources are equally efficient in producing all goods. For example, some workers or materials are better suited to making pizza, while others are better for tacos. When we shift resources from pizza to taco production (or vice versa), we start by reassigning the most adaptable resources. But as we continue, we have to use less-suited resources, leading to lower efficiency and increasing opportunity costs.
So, the outward shape of the PPF is not arbitrary — it represents a fundamental economic principle. If resources were perfectly adaptable to both goods, the PPF would be a straight line, indicating constant opportunity costs. But in reality, this is rarely the case, hence the curved, bowed-out shape.
Summary:
- The opportunity cost of a pizza increases as we produce more tacos.
- The PPF is bowed outward because opportunity costs increase as production shifts between goods
