{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Why does the PDF have a bowed-out shape

# Why does the PDF have a bowed-out shape - X is 3 units of...

This preview shows page 1. Sign up to view the full content.

The bowed-out shape of the PPF is due to the increasing opportunity cost. Suppose that the economy is initially at point C, producing 2 units of good X and 13 units of good Y . Consider what happens when the economy desires another unit of good X and so changes its production from point C on the PPF to point D. The opportunity cost of the additional unit of good X is the 2 units of good Y (13 units of Y - 11 units of Y ) that are forgone in moving from point C to point D. Now, suppose that the economy desires yet another unit of good X and so changes its production from point D on the PPF to point E. The opportunity cost of this additional unit of good
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: X is 3 units of good Y (11 units of Y- 8 units of Y ). In this example, the opportunity cost of producing 1 more unit of good X increases as more of good X is produced. The reason is that some of the resources used to produce good Y are not as well suited to producing good X . Consequently, as more and more of the economy's resources are devoted to producing good X , the opportunity cost of good X , as measured in units of good Y forgone, will be increasing. This bowed-out shape is also referred to as the law of increasing opportunity cost . 3 1 2 1...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online