Consider a production possibilities frontier (PPF) with good X on the horizontal axis and good Y on the vertical axis. The PPF is a straight line The PPF represents a. increasing opportunity costs. b. decreasing opportunity costs. c. constant opportunity costs. d. zero opportunity costs e. none of the above
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Answer: c. constant opportunity costs.
When a production possibilities frontier (PPF) is a straight line, it represents constant opportunity costs. This means that the trade-off between producing good X and good Y is always the same, regardless of how much of each good is being produced. So, for every unit of good X that is given up, a constant amount of good Y can be produced, and vice versa.
Extra: The concept of a PPF is used in economics to illustrate the idea of trade-offs and opportunity costs in production. It shows the maximum possible output combinations that an economy can produce given its resources and technology when all resources are fully and efficiently employed.
- Increasing Opportunity Costs: If the PPF were bowed outward (concave to the origin), it would represent increasing opportunity costs. This means that as you produce more of one good, you give up increasingly larger amounts of the other good due to factors like resource specialization and inefficiencies in production.
- Decreasing Opportunity Costs: A PPF that is bowed inward (convex to the origin) would represent decreasing opportunity costs, which is a less common situation. This suggests that as you produce more of one good, you give up less of the other, which could happen if an economy gets better at production as it produces more.
- Zero Opportunity Costs: Zero opportunity costs would imply that you could produce more of one good without giving up any amount of another good. This is an unrealistic scenario because in the real world, due to limited resources, producing more of one good usually means having less of another.
In summary, a straight-line PPF suggests that the opportunity cost of producing one more unit of either good remains constant as the production levels of the goods change. This simplified model is useful for teaching the basic concept but doesn't fully capture the complexities found in real-world economies.