Straight line the ppf concave striagt line ppf

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Straight line The PPF → Concave STRIAGT LINE PPF Schedule A table or numerical tabulation of the various quantities that a society can produce Assume the society produces 2 goods: Schedule Food Clothing The society has the resources to A 30 0 produce combination A & D. But the B 20 10 society will not produce neither one. C 10 20 D 0 30
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Graph A straight line PPF is a situation where an economy is experiencing constant opportunity cost. A straight line PPF tells us the resources of this economy is unspecialized. CONSTANT OPPORTUNITY COSTS BETWEEN GOODS: THE CASE OF STRAIGHT LINE PPF Assumptions: 1) Only two goods can be produced in an economy, computers and television sets 2) The Opportunity Cost of 1 television set is 1 computer 3) The Opportunity Cost between television sets and computers is constant as more of one good is produced CONCAVE PPF Assume the society produce 2 goods Schedule Food Clothing A 30 0 B 29 1 C 25 2 D 20 3 E 12 4 F 1 5 Food Clothing 0 10 30 20 10 20 30
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Graph A straight line PPF is a situation where an economy is experiencing increasing opportunity cost. A concave PPF tells us the resources of this economy is specialized. A concave PPF represents a situation where the opportunity cost is increasing. The law of opportunity cost – in society where by resources are specialized, the increase production of one good can only take place at the increasing lost of the other good. Assume that you’re the manager of a fast food place. You have 2 types of employees: cooks & cashiers. Assume you have 5 cooks & 5 cashiers. Say that both the cashiers & cooks are specialized in their work. You would not expect a person with 1-yr. Experience to be as specialized as a person with 20-yr. Experience. CHANGING OPPORTUNITY COSTS BEWEEN GOODS: THE CASE OF THE CONCAVE PPF Assumptions: 1) Only two goods can be produced in the economy 2) The Opportunity Cost between the two goods changes as more of one good is produced THE LAW OF INCREASING OOOPRTUNITY COSTS A resource is specialized if it is better suited to the production of one good than others. A resource is nonspecialized if it is equally suited to the production of all goods. When resources are specialized, increased production of one good comes at increased opportunity costs. Food Clothing 0 12 25 2 4 1 3 5 1 20 29
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The Law of Increasing Opportunity Costs states that a more of a good is produced, the higher the opportunity costs of producing that good 6 to 7 potatoes -----> 10 to 9.5 apples 7 to 8 potatoes -----> 9.5 to 8.5 apples 11 to 12 potatoes --> 5 to 3 apples We conclude that as more potatoes are produced, the opportunity cost of producing potatoes rises: hence the Law of IOCs.
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