A bowed out production possibilities frontier shows
A) that resources are equally productive in all uses.
B) increasing opportunity cost.
C) that resources are not equally productive in all uses.
D) Both answers B and C are correct.
E) Both answers A and B are correct.
The correct answer and explanation is :
The correct answer is:
D) Both answers B and C are correct.
Explanation:
A bowed-out production possibilities frontier (PPF) represents an economy where resources are not equally productive in all uses. This shape reflects the law of increasing opportunity cost, which states that as more resources are allocated to producing one good, the opportunity cost of producing additional units of that good rises.
1. Increasing Opportunity Cost (Answer B)
A PPF is bowed outwards because resources (such as labor, land, and capital) are not perfectly adaptable between different types of production. Initially, when shifting resources from producing one good to another, the opportunity cost may be low. However, as more resources are diverted, the economy must start using less efficient resources, increasing the opportunity cost.
For example, consider an economy producing cars and wheat. If the economy initially shifts labor and land suited for wheat production toward car production, the loss in wheat output is minimal. However, as more resources (such as farmland) are repurposed for car production, wheat production becomes increasingly inefficient, leading to a higher opportunity cost.
2. Unequal Productivity of Resources (Answer C)
The bowed-out shape also indicates that resources are not equally productive in all uses. Some resources are better suited for one type of production than another. In reality, farmland is highly suited for agriculture but inefficient for manufacturing cars. Similarly, skilled automotive engineers are highly productive in car manufacturing but unproductive in farming.
Since both increasing opportunity costs and unequal resource productivity explain the shape of a bowed-out PPF, the correct answer is D) Both answers B and C are correct.