When production is changed from point A to point B, then the first resources that are given up in the production of consumer goods will be those resources that are better suited to the production of captal goods. The reason for this increasing opportunity cost is that some resources are more suited to the production of capital goods and some resources are more suited to the production of consumer goods. ![]() This shows the principal of increasing opportunity cost - a greater amount of consumer goods have to be given up in order to gain the same amount of Capital goods. In going from C to D another 5 000 Capital goods are gained but this time 2 000 Consumer goods are given up.Īt the last point in going from G to H anotherĥ 000 Capital goods are gained but this time In the diagram we can see that in going from 70 000 Consumer goods and 0 Capital goods at point A toĥ 000 capital goods and 69 500 consumer goods at point B only 500 Consumer goods have to be given up.īut in going from point B to C another 5 000 capital goods are gained, but this time 1000 consumer goods are given up. This means that in order gain more of one good greater amount of the other good have to be given up. The curved PPF shows the principal of increasing opportunity cost. With every choice made there is always an opportunity cost. Scarcity occurs due to our unlimited wants but limited means and resources and so we have to make choices about what to produce. ![]() If the economy chooses to produce more of consumer goods it has to give up some Capital goods– that is the opportunity cost – the next best alternative foregone. SCARCITY of resources – the economy cannot produce outside the PPF this is the maximum amount of goods that can be produced in the economy, given available resources and technology. The PPC shows the key economic concepts of The Production Possibility Curve and Opportunity Cost. The PPF shows scarcity of resources because it cannot produce beyond this curve / line due to a lack of avaiable resources or technology. The curved line on the Production Possibility Curve or Production Possibility Frontier (PPF) shows how much the economy is able to produce - if it used all of its available resources. ![]() Resources are all of the factor endowmwnts which consist ofĬapital - human made resources used in the production process.
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