How does war affect PPF?
b) A war on U. S. soil would cause the PPF to shift inward because plant and equipment would either be used for war efforts or destroyed and people would be drafted or killed. The decrease in unemployment will expand actual production back to a level on the PPF efficiently using all resources.
How does opportunity cost affect PPF?
Opportunity cost can be illustrated by using production possibility frontiers (PPFs) which provide a simple, yet powerful tool to illustrate the effects of making an economic choice. A PPF shows all the possible combinations of two goods, or two options available at one point in time.
What causes a shift in a PPF graph?
Shifts in the production possibilities curve are caused by things that change the output of an economy, including advances in technology, changes in resources, more education or training (that’s what we call human capital) and changes in the labor force.
How does a production possibilities graph show opportunity cost?
How does a production possibilities curve illustrate opportunity cost? It shows how much were giving up for the other item. For example to produce 8 million tons of watermelons we have to give up making 1 million pairs of shoes, because resources are limited.
Why are most PPF for goods bowed outward?
The curve bows outwards because of the Law of Increasing Opportunity Cost, which states that the amount of a good which has to be sacrificed for each additional unit of another good is more than was sacrificed for the previous unit.
What will an increase in population do to a PPF?
An increase in population would also bring about an increase in the resource of labor and would shift the PPF upward or increasing overall production. A technological change that makes resources less specialized will shift the PPF upward and increase production.
What is opportunity cost graph?
The Production Possibilities Curve (PPC) is a model that captures scarcity and the opportunity costs of choices when faced with the possibility of producing two goods or services. The bowed out shape of the PPC in Figure 1 indicates that there are increasing opportunity costs of production.
Why does opportunity cost increase?
The law of increasing opportunity cost is the concept that as you continue to increase production of one good, the opportunity cost of producing that next unit increases. This comes about as you reallocate resources to produce one good that was better suited to produce the original good.
Is the opportunity cost the same as the PPF?
If you see a straight PPF, it means that there is a constant opportunity cost. So producing 5 more missiles will mean giving up 500 guns. However, there is a different style of PPF curve (for a start, it actually looks curvy). if the PPF is curved, the opportunity cost is changing. It is not the same opportunity cost at all points.
How is the opportunity cost of war measured?
The Opportunity Cost of War. Quantifying the cost is usually done in dollars, assessed by how much money was actually spent or how many lives were lost. The victor and loser of a war usually quantify the gains in terms of territory gained, enemies killed, or wealth captured.
When does the PPF of a good decrease?
Finally, a PPF has decreasing opportunity costs if the opportunity cost of a good gets smaller as more of it (this promotes specialization) and the PPF will be bowed in (like a crescent moon). Given the following table, we need to find the opportunity cost of moving from each point to another point, and construct the PPF.
How to calculate the opportunity cost of moving from one point to another?
Given the following table, we need to find the opportunity cost of moving from each point to another point, and construct the PPF. Calculating the opportunity cost requires you to figure out how much you are getting of a good, and dividing that number by how much you are giving up of the other good. What we give up/what we get.