What is law of increasing opportunity cost. what is the reason for the law
The Correct Answer and Explanation is:
The Law of Increasing Opportunity Cost states that as the production of one good increases, the opportunity cost of producing an additional unit of that good also increases. In other words, the more resources are allocated to producing one type of good, the greater the sacrifice in the production of other goods.
This law is rooted in the concept of scarcity—since resources (land, labor, capital) are limited, they are not perfectly adaptable for the production of all goods. Different goods require different combinations of resources. As production shifts more heavily toward one good, less efficient resources must be used for that good. These resources are typically less suited or more specialized in producing the other good.
For example, consider an economy that produces both computers and cars. Initially, resources like labor and machinery are well-suited for both industries. If the economy starts to produce more computers, it may reallocate some labor and machinery from car production. However, as production increases, the workers and machinery that were originally more efficient in producing cars are now used less efficiently for computers. The opportunity cost of producing additional computers increases because fewer resources remain available for car production, leading to larger sacrifices in car output for each additional unit of computers produced.
The reason for increasing opportunity costs lies in the law of diminishing returns. As more resources are diverted from one good to another, the productivity of those resources declines because they are not ideally suited to their new tasks. Thus, reallocating resources from one good to another will always result in a higher opportunity cost. This is why the production possibility curve, which shows all possible combinations of two goods an economy can produce, is typically concave to the origin. The concave shape reflects the fact that the opportunity cost of producing more of one good increases as we shift resources.
