Question

Why are most PPFs for goods bowed outward (concave downward)?

Short answer

PPFs are usually bowed outward due to the principle of increasing opportunity costs. When more of one good is made, the resources less suited for making it are used, causing higher opportunity costs because those resources are taken away from producing the other goods. This increasing cost is why the PPF curves outward.

Step-by-step solution

Definition of PPF

The Production Possibility Frontier (PPF) is a graph that shows the combinations of two goods or services that can be produced efficiently with a given amount of resources. These points on the PPF represent the maximum feasible amount of one good for a given quantity of the other.

Understanding the shape of PPF

If the PPF is a straight line, it means that the opportunity cost of producing one good in terms of the other is constant. However, PPFs are usually bowed outward or concave downward. This shape means that the opportunity cost of producing more of one good increases as more of it is produced.

Explain why PPFs are usually bowed outward

The reason for this is the principle of increasing opportunity cost: resources are not perfectly adaptable to the production of all goods. As more of one good is produced, resources that might be less efficient in producing it are being utilized, resulting in fewer resources available for the production of the other good. Thus, the opportunity cost will increase as the production of a good increases, and this growing opportunity cost is represented by the outward curve of the PPF.