PPCs for increasing, decreasing and constant opportunity cost | AP Macroeconomics | Khan Academy | Summary and Q&A

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November 17, 2017
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PPCs for increasing, decreasing and constant opportunity cost | AP Macroeconomics | Khan Academy

TL;DR

Production possibility curves can have different shapes depending on the increasing or decreasing opportunity cost of producing one good over another.

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Questions & Answers

Q: What does a bowed out production possibility curve indicate?

A bowed out curve indicates increasing opportunity cost, meaning that as more rabbits are produced, the sacrifice of berries increases. This suggests that the resources used to produce rabbits are better suited for producing berries.

Q: What does a bowed in production possibility curve indicate?

A bowed in curve represents decreasing opportunity cost, where the sacrifice of berries decreases as more rabbits are produced. This suggests that the resources used to produce rabbits are becoming increasingly efficient in capturing them.

Q: What does a straight line production possibility curve indicate?

A straight line curve represents a constant opportunity cost. This means that regardless of the number of rabbits produced, the sacrifice of berries remains the same. The resources used for both rabbits and berries are equally efficient.

Q: How do production possibility curves help in decision-making?

Production possibility curves illustrate the trade-offs involved in allocating resources between different goods. By understanding the shapes of the curves, decision-makers can determine the opportunity cost associated with producing one good over another.

Summary & Key Takeaways

  • There are three different shapes of production possibility curves for rabbits and berries: straight line, bowed out, and bowed in.

  • A bowed out curve indicates increasing opportunity cost, meaning that as more rabbits are produced, the amount of berries sacrificed increases.

  • Conversely, a bowed in curve represents decreasing opportunity cost, where the sacrifice of berries decreases as more rabbits are produced.

  • A straight line curve represents a constant opportunity cost, where the sacrifice of berries remains the same regardless of the number of rabbits produced.

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