Answer to Question #228839 in Microeconomics for mandy

Question

with the aid of a well labelled diagram briefly explain the concept of opportunity cost, scarcity and choice in the production possibilities frontier

Answer 1

Scarcity

point C is located outside the frontier hence it is unattainable using available resources and technology. Points located inside or on the frontier like A and B are attainable with the available resources and technology.The PPF curve additon illustrates scarcity through division of production space into unattainable and attainable production levels. More production of one good can only be achieved by producing less of the second good.

Increase in production of one good such as guns is achieved by decreasing the production another good, like butter.

Therefore, the opportunity cost of 100 guns equals production of 100 pounds of butter foregone.    100 G = 100 B

  1 G = 1 B

Therefore, 1 pound of butter must be given up for each extra gun produced and vice versa. The