Question

What is the "law of increasing opportunity cost," and how does it explain the outward-bowed shape of the PPF?

a) The law that states opportunity costs remain constant, leading to a bowed PPF.
b) The law that suggests opportunity costs decrease as production increases.
c) The law that explains how resources are always fully employed.
d) The law that states as you produce more of one good, the opportunity cost of producing additional units of that good increases.

Answer 1

The law of increasing opportunity cost explains the outward-bowed shape of the PPF because it states that as production of one good increases, the opportunity cost to produce additional units rises.

Step-by-step explanation:

The law of increasing opportunity cost states that as the production of one good increases, the opportunity cost of producing additional units also increases. This happens because resources are not equally suitable for producing all goods. As more resources are allocated to the production of one good, the resources being used are less and less efficient at producing that good. This concept is demonstrated in the shape of the production possibilities frontier (PPF). The PPF is a curve that represents the maximum possible output combinations of two goods or services that can be produced within a given level of technology and resources. The outward-bowed shape of the PPF illustrates that as you increase production of one good, the opportunity costs increase, leading to a steeper slope and this curved shape. Therefore, the correct answer to the provided choices is d) The law that states as you produce more of one good, the opportunity cost of producing additional units of that good increases.