why is the ppf downward sloping

Now imagine that some of these resources are diverted from health care to education, so that the economy is at point B instead of point A. In Panel (a) we have a combined production possibilities curve for Alpine Sports, assuming that it now has 10 plants producing skis and snowboards. The exhibit gives the slopes of the production possibilities curves for each plant. Factors of production (labor, capital, land) Is the PPF bowed or straight? That is the tradeoff society faces. A PPF w/Constant Opportunity Cost is a linear line, meaning the line is straight (not curved), and To be linear means the change between any two points anywhere on the line will be consistent. Figure 1. Plant 3 would be the last plant converted to ski production. This lawasserts that as additional increments of resources are devotedto a certain purpose, the marginal benefit from those additional increments will decline. A production possibilities frontier showing health care and education. This curve depicts an entire economy that produces only skis and snowboards. 2.3 Applications of the Production Possibilities Model, 4.2 Government Intervention in Market Prices: Price Floors and Price Ceilings, 5.2 Responsiveness of Demand to Other Factors, 7.3 Indifference Curve Analysis: An Alternative Approach to Understanding Consumer Choice, 8.1 Production Choices and Costs: The Short Run, 8.2 Production Choices and Costs: The Long Run, 9.2 Output Determination in the Short Run, 11.1 Monopolistic Competition: Competition Among Many, 11.2 Oligopoly: Competition Among the Few, 11.3 Extensions of Imperfect Competition: Advertising and Price Discrimination, 14.1 Price-Setting Buyers: The Case of Monopsony, 15.1 The Role of Government in a Market Economy, 16.1 Antitrust Laws and Their Interpretation, 16.2 Antitrust and Competitiveness in a Global Economy, 16.3 Regulation: Protecting People from the Market, 18.1 Maximizing the Net Benefits of Pollution, 20.1 Growth of Real GDP and Business Cycles, 22.2 Aggregate Demand and Aggregate Supply: The Long Run and the Short Run, 22.3 Recessionary and Inflationary Gaps and Long-Run Macroeconomic Equilibrium, 23.2 Growth and the Long-Run Aggregate Supply Curve, 24.2 The Banking System and Money Creation, 25.1 The Bond and Foreign Exchange Markets, 25.2 Demand, Supply, and Equilibrium in the Money Market, 26.1 Monetary Policy in the United States, 26.2 Problems and Controversies of Monetary Policy, 26.3 Monetary Policy and the Equation of Exchange, 27.2 The Use of Fiscal Policy to Stabilize the Economy, 28.1 Determining the Level of Consumption, 28.3 Aggregate Expenditures and Aggregate Demand, 30.1 The International Sector: An Introduction, 31.2 Explaining InflationUnemployment Relationships, 31.3 Inflation and Unemployment in the Long Run, 32.1 The Great Depression and Keynesian Economics, 32.2 Keynesian Economics in the 1960s and 1970s, 32.3. Suppose society has chosen to operate at point B, and it is considering producing more education. We can think of this as the opportunity cost of producing an additional snowboard at Plant 1. https://openstax.org/books/principles-economics-3e/pages/1-introduction, https://openstax.org/books/principles-economics-3e/pages/2-2-the-production-possibilities-frontier-and-social-choices, Creative Commons Attribution 4.0 International License, Interpret production possibilities frontier graphs, Contrast a budget constraint and a production possibilities frontier, Explain the relationship between a production possibilities frontier and the law of diminishing returns, Contrast productive efficiency and allocative efficiency. We would say that Plant 1 has a comparative advantage in ski production. Figure 2.8 Idle Factors and Production shows an economy that can produce food and clothing. Production Possibility Frontier for the U.S. and Brazil. When factors of production are allocated on a basis other than comparative advantage, the result is inefficient production. Most importantly, the production possibilities frontier clearly shows the tradeoff between healthcare and education. All choices on the PPF in Figure 2.4, including A, B, C, D, and F, display productive efficiency. 2. it, Posted 2 years ago. The Production Possibilities Frontier (PPF) is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. Its land is devoted largely to nonagricultural use. This production possibilities curve includes 10 linear segments and is almost a smooth curve. In that case, it produces no snowboards. (I mean, we should move point A higher and don't change point F.) The question about task 1 in Self-Check questions, "Output mixes that had more healthcare (and less education) would have a steeper ray, while those with more education (and less healthcare) would have a flatter ray.". Direct link to Andrea Burgio's post I dont know if i'm missin, Posted 2 years ago. It illustrates the production possibilities model. Figure 2. Just because you can make a billion phones because it is along the PPF curve is not reasonable. When can PPC be a straight line? Opportunity cost is the trade-off that one makes when deciding between two options. To construct a combined production possibilities curve for all three plants, we can begin by asking how many pairs of skis Alpine Sports could produce if it were producing only skis. The doctors are good at medicine, but theyre not particularly good at teaching, so it doesnt make sense for them to switch. Now suppose the firm decides to produce 100 snowboards. An inefficient organization operates with long delays and high costs, while an efficient organization meets schedules, is focused, and performs within budget. In this way, the law of increasing opportunity cost produces the outward-bending shape of the production possibilities frontier. Thus, the slope of the PPF is relatively flat near the vertical-axis intercept. An economy achieves a point on its production possibilities curve only if it allocates its factors of production on the basis of comparative advantage. Why is PPF downward sloping? The PPF is downward sloping because it depicts the trade-off between two products. What happen if society wants less products than what are on the productive efficiency point? Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . We recommend using a What is productive efficiency? There are at least two ways to read this list. As we saw earlier, the curvature of a countrys PPF gives us information about the tradeoff between devoting resources to producing one good versus another. The PPF is downward sloping because it depicts the trade-off between two products. Economists often use models such as the production possibilities model with graphs that show the general shapes of curves but that do not include specific numbers. In the first case, a society may discover that it has been using its resources inefficiently, in which case by improving efficiency and producing on the production possibilities frontier, it can have more of all goods (or at least more of some and less of none). Explain why societies cannot make a choice above their production possibilities frontier and should not make a choice below it. If it chooses to produce at point A, for example, it can produce FA units of food and CA units of clothing. First, the economy might fail to use fully the resources available to it. Suppose it considers moving from point B to point C. What would the opportunity cost be for the additional education? Now suppose that, to increase snowboard production, it transfers plants in numerical order: Plant 1 first, then Plant 2, and finally Plant 3. Suppose it begins at point D, producing 300 snowboards per month and no skis. Production and employment fell. Points that lie inside (or below) the PPF are a . When a country can produce a good at a lower opportunity cost than another country, we say that this country has a. One, of course, was increased defense spending. The opportunity cost of an additional snowboard at each plant equals the absolute values of these slopes (that is, the number of pairs of skis that must be given up per snowboard). (i) PP curve slopes down. In Welcome to Economics! This spending took a variety of forms. That is because the resources transferred from the production of other goods and services to the production of security had a greater and greater comparative advantage in producing things other than security. A movement from A to B requires shifting resources out of the production of all other goods and services and into spending on security. Because at any given moment, society has limited resources, it follows that theres a limit to the quantities of goods and services it can produce. Suppose Alpine Sports operates the three plants we examined in Figure 2.4 Production Possibilities at Three Plants. Graphically, the rise is small and the run is large so the slope (which is the ratio of rise over run) is flat. At A all resources go to healthcare and at B, most go to healthcare. The teachers, though, are good at education, and not very good at healthcare. The particular mix of goods and services being producedthat is, the specific combination of healthcare and education chosen along the production possibilities frontiercan be shown as a ray (line) from the origin to a specific point on the PPF. Even though each of the plants has a linear curve, combining them according to comparative advantage, as we did with 3 plants in Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports, produces what appears to be a smooth, nonlinear curve, even though it is made up of linear segments. Thats the trade-off this society faces. Also, the simplified PPF does not show demand. Why does a PPF curve have to slope downward? Understand the difference between comparative advantage and . These values are plotted in a production possibilities curve for Plant 1. Wed love your input. Production had plummeted by almost 30%. For example in the marginal opportunity cost schedule given in Q. The U.S. PPF is flatter than the Brazil PPF implying that the opportunity cost of wheat in term of sugar cane is lower in the U.S. than in Brazil. However, economics can point out that some choices are unambiguously better than others. But it would not have any resources to produce education. The shape of the PPF is typically curved outward, rather than straight. So it makes sense for teachers to be reallocated from healthcare to education. For the sake of concreteness, you can imagine that in the movement from D to F, the last few doctors must become high school science teachers, the last few nurses must become school librarians rather than dispensers of vaccinations, and the last few emergency rooms are turned into kindergartens. Because of this, the magnitude of the slope of the PPF increases, meaning the slope gets steeper, as we move down and to the right along the curve. The gains we achieve through specialization are enormous. Figure 2.9 Efficient Versus Inefficient Production. The result is a far greater quantity of goods and services than would be available without this specialization. We often think of the loss of jobs in terms of the workers; they have lost a chance to work and to earn income. Because the PPF is downward sloping from left to right, the only way society can obtain more education is by giving up some healthcare. PPF is more likely to be a downward-sloping curve that is bowed outward than a downward-sloping straight line because most resources are NOT: relatively cheap at low levels of output. Scarcity implies that a production possibilities curve is downward sloping; the law of increasing opportunity cost implies that it will be bowed out, or concave, in shape. Countries tend to have different opportunity costs of producing a specific good, either because of different climates, geography, technology, or skills. The exhibit gives the slopes of the production possibilities curves for each of the firms three plants. In an actual economy, with a tremendous number of firms and workers, it is easy to see that the production possibilities curve will be smooth. The law also applies as the firm shifts from snowboards to skis. At point A, all available resources are devoted to healthcare and no resources are left for education. Production on the production possibilities curve ABCD requires that factors of production be transferred according to comparative advantage. concave towards the origin. are not subject to the Creative Commons license and may not be reproduced without the prior and express written So, a society must choose between tradeoffs in the present. Direct link to vlad.guboy's post "Output mixes that had mo, Lesson 3: Production possibilities frontier. Because society has limited resources (e.g., labor, land, capital, raw materials) at any point in time, there is a limit to the quantities of goods and services it can produce. If every trade-off were the same, it would create a straight line. See full answer below. 18. In addition, over time, improvements in technology can increase the level of production with given resources, and hence push out the PPF. Use the production possibilities model to distinguish between full employment and situations of idle factors of production and between efficient and inefficient production. Instead of the bowed-out production possibilities curve ABCD, we get a bowed-in curve, ABCD. Were now readyto address the differences between societys PPF and an individuals budget constraint. If Alpine Sports selects point C in Figure 2.9 Efficient Versus Inefficient Production, for example, it will assign Plant 1 exclusively to ski production and Plants 2 and 3 exclusively to snowboard production. Now imagine that some of these resources are diverted from healthcare to education, so that the economy is at point B instead of point A. This observation is based on the concept of efficiency. The production of both goods rises. The production possibilities model suggests that specialization will occur. Hence the sudden mention of Alphonso. In the second case, as resources grow over a period of years (e.g., more labor and more capital), the economy grows. Suppose a society desires two products: health care and education. The bowed-out production possibilities curve for Alpine Sports illustrates the law of increasing opportunity cost. Plant S has a comparative advantage in producing radios, so, if the firm goes from producing 150 calculators and no radios to producing 100 radios, it will produce them at Plant S. In the production possibilities curve for both plants, the firm would be at M, producing 100 calculators at Plant R. Principles of Economics by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted. Thus, the slope of a PPF starts flat and becomes increasingly steeper. we learned that every society faces the problem of scarcity, where limited resources conflict with unlimited needs and wants. 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. This is because its slope is given by the relative prices of the two goods, which from the point of view of an individual consumer, are fixed, so the slope doesn't change. However, improvements in productive efficiency take time to discover and implement, and economic growth happens only gradually. 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. We see in Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports that, beginning at point A and producing only skis, Alpine Sports experiences higher and higher opportunity costs as it produces more snowboards. The opportunity cost would be the healthcare society has to forgo. An Emerging Consensus: Macroeconomics for the Twenty-First Century, 33.1 The Nature and Challenge of Economic Development, 33.2 Population Growth and Economic Development, 34.1 The Theory and Practice of Socialism, 34.3 Economies in Transition: China and Russia, Appendix A.1: How to Construct and Interpret Graphs, Appendix A.2: Nonlinear Relationships and Graphs without Numbers, Appendix A.3: Using Graphs and Charts to Show Values of Variables, Appendix B: Extensions of the Aggregate Expenditures Model, Appendix B.2: The Aggregate Expenditures Model and Fiscal Policy. Suppose Plant 1 is producing 100 pairs of skis and 50 snowboards per month at point B. The Great Depression was a costly experience indeed. As a conceptual model, it simplifies. Production possibilities represent the alternative choices of goods that the economy can produce. The slope of the PPF gives the opportunity cost of producing an additional unit of wheat. Where does the PPF come from? Producing 1 additional snowboard at point B requires giving up 2 pairs of skis. We illustrate this by the PPFs of the two countries in Figure 2.5. A budget constraint shows the different combinations of goods and services a consumer can purchase with their fixed budget.

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