why is the ppf downward sloping

If the society were to allocate all of its resources to healthcare, it could produce at point A. The shape of the PPF is typically curved outward, rather than straight. The greater the absolute value of the slope of the production possibilities curve, the greater the opportunity cost will be. The U.S. has comparative advantage in wheat and Brazil has comparative advantage in sugar cane. Now suppose that, to increase snowboard production, it transfers plants in numerical order: Plant 1 first, then Plant 2, and finally Plant 3. What type of resources are going to move to producing education? If there are idle or inefficiently allocated factors of production, the economy will operate inside the production possibilities curve. For example in the marginal opportunity cost schedule given in Q. Plant 3 would be the last plant converted to ski production. Chapter 1: Economics: The Study of Choice, Chapter 2: Confronting Scarcity: Choices in Production, Chapter 4: Applications of Demand and Supply, Chapter 5: Elasticity: A Measure of Response, Chapter 6: Markets, Maximizers, and Efficiency, Chapter 7: The Analysis of Consumer Choice, Chapter 9: Competitive Markets for Goods and Services, Chapter 11: The World of Imperfect Competition, Chapter 12: Wages and Employment in Perfect Competition, Chapter 13: Interest Rates and the Markets for Capital and Natural Resources, Chapter 14: Imperfectly Competitive Markets for Factors of Production, Chapter 15: Public Finance and Public Choice, Chapter 16: Antitrust Policy and Business Regulation, Chapter 18: The Economics of the Environment, Chapter 19: Inequality, Poverty, and Discrimination, Chapter 20: Macroeconomics: The Big Picture, Chapter 21: Measuring Total Output and Income, Chapter 22: Aggregate Demand and Aggregate Supply, Chapter 24: The Nature and Creation of Money, Chapter 25: Financial Markets and the Economy, Chapter 28: Consumption and the Aggregate Expenditures Model, Chapter 29: Investment and Economic Activity, Chapter 30: Net Exports and International Finance, Chapter 32: A Brief History of Macroeconomic Thought and Policy, Chapter 34: Socialist Economies in Transition, Figure 2.2 A Production Possibilities Curve, Figure 2.3 The Slope of a Production Possibilities Curve, Figure 2.4 Production Possibilities at Three Plants, Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports, Figure 2.6 Production Possibilities for the Economy, Figure 2.9 Efficient Versus Inefficient Production, Next: 2.3 Applications of the Production Possibilities Model, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Allocative efficiency means that the particular mix of goods being producedthat is, the specific choice along the production possibilities frontierrepresents the allocation that society most desires. In such a case, more of one good can be produced only by taking resources away from the production of another good. More generally, as society produces more and more of some good or service, the cost of production grows larger and larger relative to the cost of producing other goods or services. Often how much of a good a country decides to produce depends on how expensive it is to produce it versus buying it from a different country. Countries tend to have different opportunity costs of producing a specific good, either because of different climates, geography, technology, or skills. We often think of the loss of jobs in terms of the workers; they have lost a chance to work and to earn income. And when they move, the society doesnt lose much healthcare, because the teachers werent very good at that. concave towards the origin. Suppose the first plant, Plant 1, can produce 200 pairs of skis per month when it produces only skis. We have seen the law of increasing opportunity cost at work traveling from point A toward point D on the production possibilities curve in Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports. At the individual and firm level, the market economy coordinates a process in which firms seek to produce goods and services in the quantity, quality, and price that people want. They continued to fall for several years. Now suppose the firm decides to produce 100 snowboards. It also suffered many human casualties, both soldiers and civilians. When countries engage in trade, they specialize in the production of the goods that they have a comparative advantage in, and trade part of that production for goods they do not have a comparative advantage in. This production possibilities frontier shows a tradeoff between devoting social resources to healthcare and devoting them to education. There are more similarities than differences, so for now focus on the similarities. This spending took a variety of forms. Thus, the production possibilities curve not only shows what can be produced; it provides insight into how goods and services should be produced. Production of all other goods and services falls by OA OB units per period. The lesson is not that society is likely to make an extreme choice like devoting no resources to education at point A or no resources to health at point F. Instead, the lesson is that the gains from committing additional marginal resources to education depend on how much is already being spent. The production of both goods rises. Workers, for example, specialize in particular fields in which they have a comparative advantage. The first is the fact that the budget constraint is a straight line. MicroEcon Ch 2 Quiz Flashcards | Quizlet In the production possibilities framework, economic growth is depicted by the PPF We will generally draw production possibilities curves for the economy as smooth, bowed-out curves, like the one in Panel (b). As we choose more of one good and less of another, we are simply spending dollars on different items, but every dollar is worth the same in purchasing any item. Figure 1. When a country can produce a good at a lower opportunity cost than another country, we say that this country has a comparative advantage in that good. Diverting some resources away from A to B causes relatively little reduction in health because the last few marginal dollars going into healthcare services are not producing much additional gain in health. That is certainly one possible way of allocating a societys resources, but it would mean there would be no resources left for education. are licensed under a, The Production Possibilities Frontier and Social Choices. The fact that the opportunity cost of additional snowboards increases as the firm produces more of them is a reflection of an important economic law. Figure 2.9 Efficient Versus Inefficient Production illustrates the result. In effect, the production possibilities frontier plays the same role for society as the budget constraint plays for Alphonso. At A all resources go to healthcare and at B, most go to healthcare. This happens because some resources are better suited for producing certain goods and services instead of others. The production of a good has an opportunity cost. What Is Economics, and Why Is It Important? This pattern is so common that it has been given a name: thelaw of diminishing returns. In drawing production possibilities curves for the economy, we shall generally assume they are smooth and bowed out, as in Panel (b). Neither skis nor snowboards is an independent or a dependent variable in the production possibilities model; we can assign either one to the vertical or to the horizontal axis. What is allocative efficiency? Conversely, the U.S. can produce a lot of wheat per acre, but not much sugar cane. Whether or not we have specific numbers, conceptually we can measure the opportunity cost of additional education as society moves from point B to point C on the PPF. How to determine what a society desires can be a controversial question, and is usually a discussion in political science, sociology, and philosophy classes as well as in economics.

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