Resources are not equally useful in all activities. The PPF is downward sloping because of the scarcity of productive resources, whereas it is bowed-outward because of the resource allocation based on the comparative advantage. Such type of allocation implies the law of increasing opportunity cost will hold. For the economy as a whole, an improvement in technology shifts the production possibilities frontier outward.
Producers respond to the cheaper production process by increasing output , shifting the supply curve outwards. The effects of an increase in capital investment In the long run, the investment will increase the economy's capacity to produce, which shifts the LRAS curve to the right.
Increases in the quantity or quality of resources will shift the PPC outward , making it possible to produce greater quantities of both goods. Decreases in the quantity or quality of resources will shift the PPC inward. This decreases the possible production of both goods. Production Possibility Curve is called the opportunity cost curve as it is the curve which shows the combinations of two goods and services that can be produced with fuller utilisation of a given amount of resources in the most efficient way and with a given production technology.
PPC is concave to origin. Economic growth in the production possibilities curve PPC model. The production possibilities curve illustrates the maximum combination of output of two goods that an economy can produce, such as capital goods and consumption goods. If that curve shifts out, the capacity to produce has increased. Therefore, if marginal opportunity cost remains constant then PPC will be a straight line owing to constant slope. Begin typing your search term above and press enter to search.
Press ESC to cancel. Skip to content Home Sociology Why does the PPF bow outward and what does that imply about the relation between opportunity cost and the quantity produced? Ben Davis January 27, Why does the PPF bow outward and what does that imply about the relation between opportunity cost and the quantity produced?
Why are some production possibility frontiers bowed out quizlet? What is the relationship between PPC and opportunity cost? How do you explain the PPC curve? What are the uses of PPC? The unemployed resources are just being utilized unemployed labor going back to work.
The production possibility curve bows outward as a result of the law of increasing cost. The law of increasing costs takes place when society uses more resources which takes those resources always from the production of the other good , to product any specific good.
This causes increased opportunity cost with each additional unit produced of that specific good increasing amounts of the other good have to be given up. The reason is simply that, as a nation, certain resources are better suited for producing some goods then they are for other goods.
Some resources would be better adapted for use with investment goods, for instance, than consumption goods. In contrast, the PPF has a curved shape because of the law of the diminishing returns. The second is the absence of specific numbers on the axes of the PPF. There are no specific numbers because we do not know the exact amount of resources this imaginary economy has, nor do we know how many resources it takes to produce healthcare and how many resources it takes to produce education.
If this were a real world example, that data would be available. An additional reason for the lack of numbers is that there is no single way to measure levels of education and healthcare.
However, when you think of improvements in education, you can think of accomplishments like more years of school completed, fewer high-school dropouts, and higher scores on standardized tests. When you think of improvements in healthcare, you can think of longer life expectancies, lower levels of infant mortality, and fewer outbreaks of disease.
Whether or not we have specific numbers, conceptually we can measure the opportunity cost of additional education as society moves from point B to point C on the PPF. The additional education is measured by the horizontal distance between B and C. The foregone healthcare is given by the vertical distance between B and C. This is the opportunity cost of the additional education.
The budget constraints presented earlier in this chapter, showing individual choices about what quantities of goods to consume, were all straight lines. The reason for these straight lines was that the slope of the budget constraint was determined by relative prices of the two goods in the consumption budget constraint. However, the production possibilities frontier for healthcare and education was drawn as a curved line. Why does the PPF have a different shape?
At point A, all available resources are devoted to healthcare and none are left for education. This situation would be extreme and even ridiculous. For example, children are seeing a doctor every day, whether they are sick or not, but not attending school. People are having cosmetic surgery on every part of their bodies, but no high school or college education exists.
Now imagine that some of these resources are diverted from healthcare to education, so that the economy is at point B instead of point A. Diverting some resources away from A to B causes relatively little reduction in health because the last few marginal dollars going into healthcare services are not producing much additional gain in health. However, putting those marginal dollars into education, which is completely without resources at point A, can produce relatively large gains.
For this reason, the shape of the PPF from A to B is relatively flat, representing a relatively small drop-off in health and a relatively large gain in education. Now consider the other end, at the lower right, of the production possibilities frontier. Imagine that society starts at choice D, which is devoting nearly all resources to education and very few to healthcare, and moves to point F, which is devoting all spending to education and none to healthcare.
For the sake of concreteness, you can imagine that in the movement from D to F, the last few doctors must become high school science teachers, the last few nurses must become school librarians rather than dispensers of vaccinations, and the last few emergency rooms are turned into kindergartens. The gains to education from adding these last few resources to education are very small.
However, the opportunity cost lost to health will be fairly large, and thus the slope of the PPF between D and F is steep, showing a large drop in health for only a small gain in education.
The lesson is not that society is likely to make an extreme choice like devoting no resources to education at point A or no resources to health at point F. Instead, the lesson is that the gains from committing additional marginal resources to education depend on how much is already being spent. If on the one hand, very few resources are currently committed to education, then an increase in resources used can bring relatively large gains.
On the other hand, if a large number of resources are already committed to education, then committing additional resources will bring relatively smaller gains. This pattern is common enough that it has been given a name: the law of diminishing returns , which holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline.
When government spends a certain amount more on reducing crime, for example, the original gains in reducing crime could be relatively large. But additional increases typically cause relatively smaller reductions in crime, and paying for enough police and security to reduce crime to nothing at all would be tremendously expensive. The curvature of the production possibilities frontier shows that as additional resources are added to education, moving from left to right along the horizontal axis, the original gains are fairly large, but gradually diminish.
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