The bowed out (concave) shape of the production possibilities curve implies that as production of one good
A) increases, society must forgo increasing amounts of another good.
B) increases, society must forgo decreasing amounts of another good.
C) decreases, production of other goods decreases as well.
D) increases, production of other goods increases as well.
E) increases, society can obtain a free lunch.
The correct answer and explanation is :
The correct answer is:
A) increases, society must forgo increasing amounts of another good.
Explanation:
The production possibilities curve (PPC) represents the maximum possible output combinations of two goods that an economy can produce given its resources and technology. The bowed-out (concave) shape of the PPC reflects the principle of increasing opportunity cost.
1. Law of Increasing Opportunity Cost:
- As more of one good is produced, resources that are less suited for producing that good must be used.
- Initially, society can shift resources that are highly efficient at producing the additional good. However, as production continues, resources become less suitable, leading to greater inefficiency.
- This results in an increasing amount of the other good being forgone to produce an additional unit of the first good.
2. Why the PPC is Concave:
- Different resources have varying efficiencies in producing different goods.
- For example, if an economy produces both wheat and computers, land is better suited for wheat, while skilled labor and factories are better suited for computers.
- If society reallocates land to computer production, the efficiency drops, leading to a greater loss in wheat output per additional computer produced.
3. Why Other Options Are Incorrect:
- B) Decreasing opportunity costs are unrealistic because not all resources are equally efficient in producing both goods.
- C) If production of one good decreases, it does not necessarily mean the production of other goods must decrease, as resources can be reallocated.
- D) Increasing production of one good does not automatically increase the production of others due to limited resources.
- E) There is no “free lunch” because opportunity costs exist when choosing between alternatives.
Thus, the concave PPC shape confirms that increasing the production of one good requires giving up increasingly larger amounts of another good.