The idea of increasing opportunity cost is reflected in the
A) bowed out shape of the production possibilities frontier.
B) bowed in shape of the production possibilities frontier.
C) linear shape of the production possibilities frontier.
D) positive slope of the production possibilities frontier.
E) fact that the PPF shows there are unattainable production points.
The correct answer and explanation is :
Correct Answer:
A) Bowed out shape of the production possibilities frontier.
Explanation:
The principle of increasing opportunity cost states that as an economy produces more of one good, the opportunity cost of producing additional units of that good increases. This concept is best illustrated by the bowed-out shape of the Production Possibilities Frontier (PPF).
Understanding the PPF
A Production Possibilities Frontier (PPF) is a curve that shows the maximum possible output combinations of two goods that an economy can produce given its available resources and technology. The PPF typically bows outward due to the law of increasing opportunity cost.
Why the PPF is Bowed Out
- Resources are not perfectly adaptable: Different resources are suited for producing different goods. As an economy reallocates resources from one good to another, the efficiency of those resources in the new production decreases.
- Increasing trade-offs: Initially, shifting resources from one good to another has a low opportunity cost because the resources are well-suited for both goods. However, as production continues to shift, less efficient resources must be used, increasing the opportunity cost.
For example, if an economy produces both cars and computers, workers and machines specialized in making computers may not be as efficient at making cars. If more cars are produced, workers and machines better suited for making computers will have to be reassigned, leading to a higher opportunity cost.
Incorrect Answer Choices
- B) Bowed in shape – This would indicate decreasing opportunity costs, which is unrealistic.
- C) Linear shape – A straight-line PPF suggests constant opportunity cost, which is uncommon.
- D) Positive slope – The PPF typically has a negative slope because producing more of one good requires sacrificing some of the other.
- E) Unattainable points – While some points are unattainable, this does not directly relate to increasing opportunity cost.
Thus, the bowed-out shape of the PPF correctly reflects the principle of increasing opportunity cost.