If we want to increase our production of one good, we must decrease our production of something else. The production possibilities frontier PPF is the boundary between combinations of goods that can be produced and those that cannot.
To illustrate a PPF , we look at a model economy in which the quantities produced of only two goods—lattes and sandwiches—change, and the quantities produced of all the other goods and services remain the same. Figure 1 shows the PPF for lattes and sandwiches, which shows the limits to the production of these two goods. In Figure 1, producing at points A or B is attainable, but producing at point C is unattainable.
The opportunity cost of an action is the highest-valued alternative forgone. The PPF makes this idea precise and enables us to calculate the opportunity cost. Along the PPF , there are only two goods, so only one alternative is forgone. To produce more lattes, we must produce fewer sandwiches. The opportunity cost of producing an additional latte is the number of sandwiches we must forgo.
And the opportunity cost of producing an additional sandwich is the number of lattes we must forgo. The PPF is bowed outward because resources are not all equally productive in all activities. People with many years of experience working for Starbucks are good at producing lattes but not very good at producing sandwiches. So if we move some of these people from Starbucks to Subway, we get a small increase in the quantity of sandwiches but a large decrease in the quantity of lattes.
Similarly, people who have spent years working at Subway are good at producing sandwiches, but they have no idea how to produce a latte. So if we move some people from Subway to Starbucks, we get a small increase in the quantity of lattes but a large decrease in the quantity of sandwiches. The more we produce of either good, the less productive are the additional resources we use and the larger is the opportunity cost of one unit of that good.
The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, inefficiency, economic growth, and contractions. A player attends baseball training to be a better player instead of taking a vacation.
The opportunity cost was the vacation. Jill decides to take the bus to work instead of driving. It takes her 60 minutes to get there on the bus and driving would have been 40, so her opportunity cost is 20 minutes. Assuming your other options were less expensive, the value of what it would have cost to rent elsewhere is your opportunity cost.
Understanding Comparative Advantage Put simply, an opportunity cost is a potential benefit that someone loses out on when selecting a particular option over another. The company with the lower opportunity cost, and thus the smallest potential benefit which was lost, holds this type of advantage. As the law says, as you increase the production of one good, the opportunity cost to produce the additional good increases.
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? What are the features of PPC?
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