Question

Along a production possibilities curve, an increase in the production of one good can be accomplished only by a. decreasing the production of another good. b. increasing the production of another good. c. holding constant the production of another good. d. producing at a point on a corner of the curve.

Short answer

Option A is correct. Along a production possibilities curve, an increase in the production of one good can be accomplished only by decreasing the production of another good. This is because resources are limited and fully employed, so reallocating resources for one good would reduce resources for another, reflecting the concept of opportunity cost.

Step-by-step solution

Understanding the Production Possibilities Curve (PPC)

The production possibilities curve reflects the principle of opportunity cost, and shows the trade-offs that an economy faces when producing two goods or services. The curve is generally convex (bowed outwards) due to the law of increasing opportunity cost, which states that as we produce more of one good, the opportunity cost of producing that good in terms of the other good rises.

Analyzing Option A: Decreasing the production of another good

If we increase the production of one good, we must decrease the production of the other good. This is because assuming full employment of resources, there are no idle resources that could be used to produce additional units of one good without affecting the production of the other. In other words, to produce more of one good, some resources must be taken away from the production of the other good, resulting in a decrease in the production of that good. This reflects the concept of opportunity cost.

Analyzing Option B: Increasing the production of another good

Increasing the production of one good and another good at the same time is not possible along the production possibilities curve. This is because the PPC assumes that resources are fully employed and fixed in amount, so allocating more resources for one product would result in taking resources from the other product.

Analyzing Option C: Holding constant the production of another good

Holding constant the production of another good while increasing the production of one good would not be possible along the PPC, considering that all resources are fully employed. In order to increase production of one good, resources must be reallocated from the production of the other good.

Analyzing Option D: Producing at a point on a corner of the curve

Producing at a point on a corner of the curve suggests that all resources are allocated to the production of one good while none are allocated to the other. In this case, increasing the production of one good without affecting the production of the other one is not applicable, as the other good is already not being produced.

Choosing the correct answer

Based on our analysis, option A is the correct answer. Along a production possibilities curve, an increase in the production of one good can be accomplished only by decreasing the production of another good. This reflects the concept of opportunity cost, and the fact that resources are limited and fully employed.

Key concepts

Opportunity Cost

Opportunity cost is a fundamental concept in economics. When resources are limited, making a choice to produce more of one good means forgoing the production of another good.
For example, if a farm decides to grow more corn, it might have to reduce the area devoted to wheat. The opportunity cost is the amount of wheat not grown.
This cost is represented on the production possibilities curve (PPC). The PPC shows the maximum potential output of two goods given a fixed set of resources.
As you move along the curve from one product to another, the opportunity cost increases.

• Choices are essential: Every choice has a cost, known as the opportunity cost.
• It highlights trade-offs and efficiency: Using resources efficiently means maximizing the benefits from them.
• Opportunity cost is not about money: It considers the value of what you give up.

Understanding opportunity cost helps in making informed economic choices, showing the cost of choosing one option over another.

Trade-offs

Trade-offs are decisions where you give up one thing to gain something else. In economics, when resources are scarce and choices must be made, trade-offs become inevitable.
Increasing production of one good requires sacrificing production of another. This gets represented on the production possibilities curve.
For example, a country might decide to produce more military goods (guns) at the cost of fewer consumer goods (butter). The trade-off is less butter for more guns.
The PPC graphically illustrates these trade-offs.

• Scarcity leads to trade-offs: Limited resources mean not every want can be met.
• Everything has a cost: The curve makes it clear that producing more of one item means producing less of another.
• What influences these choices: Preferences and priorities shape what trade-offs an economy makes.

Recognizing trade-offs allows for better decision-making, considering what needs are prioritized over others.

Economic Resources

Economic resources are the inputs used to produce goods and services. They are often categorized into: land, labor, capital, and entrepreneurship. These resources are limited in nature, leading to the necessity of making choices about their allocation.
On the production possibilities curve, these resources are assumed to be fully employed and efficiently used. This means that without increasing the total amount of resources, increasing the output of one good leads to a decrease in the output of another.
Here are the types of economic resources explained:

• Land: This includes natural resources like forests, minerals, and water.
• Labor: It refers to human resources or the workforce.
• Capital: This means physical assets like machinery or buildings used in production.
• Entrepreneurship: The ability to bring together the other resources, innovate and take risks.

An understanding of economic resources emphasizes the limitations, driving home the point that we must use what we have efficiently to satisfy our diverse needs and wants.