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Chapter 2: Problem 6

Why are most PPFs for goods bowed outward (concave downward)?

Short Answer

Expert verified
PPFs are usually bowed outward due to the principle of increasing opportunity costs. When more of one good is made, the resources less suited for making it are used, causing higher opportunity costs because those resources are taken away from producing the other goods. This increasing cost is why the PPF curves outward.

Step by step solution

01

Definition of PPF

The Production Possibility Frontier (PPF) is a graph that shows the combinations of two goods or services that can be produced efficiently with a given amount of resources. These points on the PPF represent the maximum feasible amount of one good for a given quantity of the other.
02

Understanding the shape of PPF

If the PPF is a straight line, it means that the opportunity cost of producing one good in terms of the other is constant. However, PPFs are usually bowed outward or concave downward. This shape means that the opportunity cost of producing more of one good increases as more of it is produced.
03

Explain why PPFs are usually bowed outward

The reason for this is the principle of increasing opportunity cost: resources are not perfectly adaptable to the production of all goods. As more of one good is produced, resources that might be less efficient in producing it are being utilized, resulting in fewer resources available for the production of the other good. Thus, the opportunity cost will increase as the production of a good increases, and this growing opportunity cost is represented by the outward curve of the PPF.

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Most popular questions from this chapter

Explain how the following can be represented in a PPF framework: (a) the finiteness of resources implicit in the scarcity condition, (b) choice, (c) opportunity cost, (d) productive efficiency, and (e) unemployed resources.

What exactly allows individuals to consume more if they specialize and trade than if they don't?

Describe how each of the following would affect the U.S. PPF: (a) a war that takes place on U.S. soil, (b) the discovery of a new oil field, (c) a decrease in the unemployment rate, and \((\mathrm{d})\) a law that requires individuals to enter lines of work for which they are not suited.

Suppose a nation's PPF shifts inward as its population grows. What happens, on average, to the material standard of living of the people? Explain your answer.

What condition must hold for the PPF to be bowed outward (concave downward)? To be a straight line?
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