according to the law of increasing opportunity cost,

Specialization implies that an economy is producing the goods and services in which it has a comparative advantage. d. Income. b. Which of the following is h(u)=1uh(u)=\frac{1}{u} \quadh(u)=u1 over 2u42 \leq u \leq 42u4, (b) g(x)=1x4g(x)=\frac{1}{\sqrt{x-4}}g(x)=x41, (c) h(x)=(x3)(5x)h(x)=\sqrt{(x-3)(5-x)}h(x)=(x3)(5x). Had the firm based its production choices on comparative advantage, it would have switched Plant 3 to snowboards and then Plant 2, so it could have operated at a point such as C. It would be producing more snowboards and more pairs of skisand using the same quantities of factors of production it was using at B. She added a second plant in a nearby town. A faster recovery from the storm Producing more skis requires shifting resources out of snowboard production and thus producing fewer snowboards. The same slope throughout the line. Production had plummeted by almost 30%. In terms of the production possibilities curve in Figure 2.7 Spending More for Security, the choice to produce more security and less of other goods and services means a movement from A to B. It shows that opportunity cost varies along the frontier. Works through central planning by government. d. People begin to retire at earlier ages, Which of the following will cause the production-possibilities curve to shift inward? c. A higher price of the good. Its downwards slope reflects scarcity. Producing a combination of goods and services beyond the production-possibilities curve. c. An increase in income Now consider what would happen if Ms. Ryder decided to produce 1 more snowboard per month. It need not imply that a particular plant is especially good at an activity. When devoted solely to snowboards, it produces 100 snowboards per month. The points on a production-possibilities curve show: A. The plant with the lowest opportunity cost of producing snowboards is Plant 3; its slope of 0.5 means that Ms. Ryder must give up half a pair of skis in that plant to produce an additional snowboard. A. an increase in the working-age population Product market. a. Two things could leave an economy operating at a point inside its production possibilities curve. Production of all other goods and services falls by OA OB units per period. Markets necessarily have a physical location. The segment of the curve around point B is magnified in Figure 2.3 The Slope of a Production Possibilities Curve. c. A technological advance Is justified by the superiority of laissez faire over government intervention. Where will it produce the calculators? The major traceable reason for this is inefficiency in resource reallocation. To provide students with online questions following each video, register your class through the Econ Lowdown Teacher Portal. b. Notice also that this curve has no numbers. McNEESE State University Assig, Statistical Techniques in Business and Economics, Douglas A. Lind, Samuel A. Wathen, William G. Marchal, Fundamentals of Engineering Economic Analysis, David Besanko, Mark Shanley, Scott Schaefer. c. Final goods and services; factors of production c. Decrease and the equilibrium quantity of jelly to decrease. Points on the production possibilities curve thus satisfy two conditions: the economy is making full use of its factors of production, and it is making efficient use of its factors of production. Finished goods are bought and sold. The slope of Plant 1s production possibilities curve measures the rate at which Alpine Sports must give up ski production to produce additional snowboards. Now to draw the PPF, create the x and y-axis, like the ones in the video. Below is the full transcript of this video presentation. To calculate market demand we: The prices of the factors of production a. Jessie's demand schedule for candy bars indicates: B. c. Maintaining a strong level of economic growth. C. A line that curves outward when resources are perfectly adaptable in the production of different goods Two years later she added a third plant in another town. The reason for the law of increasing opportunity cost is due to the fact that some resources are not well suited for You must produce everything you consume; you obtain nothing from anyone else. As we include more and more production units, the curve will become smoother and smoother. Production of basketballs is only possible by producing less of spinners . One, of course, was increased defense spending. Add the quantities demanded for each individual demand schedule vertically. The combined production possibilities curve for the firms three plants is shown in Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports. d. No change in the supply of or demand for airline tickets because the price is not changing right now. a. A change in demand means there has been a shift in the demand curve, and a change in quantity demanded: Had the firm based its production choices on comparative advantage, it would have switched Plant 3 to snowboards and then Plant 2, so it would have operated at point C. It would be producing more snowboards and more pairs of skisand using the same quantities of factors of production it was using at B. A linear function can be distinguished by: The supply curve for monkey wrenches will shift to the left. 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. The production-possibilities curve between tanks and automobiles will appear as a straight line. Suppose that Alpine Sports is producing 100 snowboards and 150 pairs of skis at point B. o Higher opportunity costs induce higher output per unit of This problem has been solved! Producing 1 additional snowboard at point B requires giving up 2 pairs of skis. Greater production of one good requires increasingly larger sacrifices of other goods. d. The invisible hand. B. a. Now suppose that, to increase snowboard production, it transfers plants in numerical order: Plant 1 first, then Plant 2, and finally Plant 3. In Plant 2, she must give up one pair of skis to gain one more snowboard. Assume that steel is used to produce monkey wrenches. Comparative advantage thus can stem from a lack of efficiency in the production of an alternative good rather than a special proficiency in the production of the first good. Production totals 350 pairs of skis per month and zero snowboards. View the full answer. 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. In this case we have categories of goods rather than specific goods. Plants 2 and 3, if devoted exclusively to ski production, can produce 100 and 50 pairs of skis per month, respectively. The demand curve will shift to the left to create equilibrium. A laissez-faire approach will reduce the level of pollution. a. b. We have seen the law of increasing opportunity cost at work traveling from point A toward point D on the production possibilities curve in Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports. C a. b. The production possibilities model does not tell us where on the curve a particular economy will operate. c. Through government mandate. A. producing a combination of goods and services beyond the production possibilities curve Figure 2.4 Production Possibilities at Three Plants shows production possibilities curves for each of the firms three plants. D. Only those resources that are privately owned are counted as factors of production, Which of the following correctly characterizes the shape of a constant opportunity cost production possibilities curve? c. The production-possibilities curve As we combine the production possibilities curves for more and more units, the curve becomes smoother. The absolute value of the slope of a production possibilities curve measures the opportunity cost of an additional unit of the good on the horizontal axis measured in terms of the quantity of the good on the vertical axis that must be forgone. Suppose a hurricane hits Florida causing widespread damage to houses and businesses. d. All of the choices. At this point, if Econ Isle produces 6 gadgets, it can produce only 4 widgets, so it loses the opportunity to produce 4 gadgets. Increasing opportunity cost is important in business and economics because it describes the danger of a complete shift into non-production. More people will be able to purchase building materials The absolute value of the slope of any production possibilities curve equals the opportunity cost of an additional unit of the good on the horizontal axis. In applying the model, we assume that the economy can produce two goods, and we assume that technology and the factors of production available to the economy remain unchanged. In other words, the opportunity cost of producing 2 widgets is 2 gadgets. That would bring ski production to 300 pairs, at point B. The largest IT transaction of the quarter was EMC's $625\$ 625$625 million acquisition of VMWare. The VMWare acquisition broadened EMC's core data storage device business to include software technology enabling multiple operating systems-such as Microsoft's Windows, Linux, and OS X-to simultaneously and independently run on the same Intel-based server or workstation. d. Jenny's wage rate rose and, in response, she decided to work more hours. It loses the opportunity to produce 2 gadgets. b. The bowed-out curve of Figure 2.4 becomes smoother as we include more production facilities. The economy experiences government failure. The attempt to provide it requires resources; it is in that sense that we shall speak of the economy as producing security. The result is a far greater quantity of goods and services than would be available without this specialization. a. Expanding snowboard production to 51 snowboards per month from 50 snowboards per month requires a reduction in ski production to 98 pairs of skis per month from 100 pairs. d. National goods and services; factors of production. The answer is Yes, and the key lies in comparative advantage. b. b. Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of The opportunity cost of moving from . In material terms, the forgone output represented a greater cost than the United States would ultimately spend in World War II. Plant 3, though, is the least efficient of the three in ski production. As the economy transitions from gadgets to widgets, the gadget workers best suited to widget production would transition first, then the workers less suited, and finally the workers not at all well suited to widget production. Although the production possibilities frontierthe PPFis a simple economic model, it's a great tool for illustrating some very important economic lessons: The frontier line illustrates scarcitybecause it shows the limits of how much can be produced with the given resources. Now suppose the firm decides to produce 100 snowboards. b. Law of Increasing Opportunity Cost: Definition & Concept It is equally possible that, had the company chosen new equipment, there would be no effect on production efficiency, and profits would remain stable. Many countries, for example, chose to move along their respective production possibilities curves to produce more security and national defense and less of all other goods in the wake of 9/11. We shall examine the significance of the bowed-out shape of the curve in the next section. Each of the plants, if devoted entirely to snowboards, could produce 100 snowboards. An economy cannot operate on its production possibilities curve unless it has full employment. Suppose the first plant, Plant 1, can produce 200 pairs of skis per month when it produces only skis. The greatest number of goods and services possible. Its downward slope reflects scarcity. That will require shifting one of its plants out of ski production. Any time you move from one point to another on the line, opportunity cost is revealedthat is, what you must give up to gain something else. d. Decrease and the equilibrium quantity of jelly to increase. d. The government is allocating resources inefficiently. b. The economy produces SA units of security and OA units of all other goods and services per period. Change in y coordinates between two points divided by the change in their x coordinates. The related concept of marginal cost is the cost of producing one extra unit of something. c. Also means demand has shifted. Here's widget production increased by another 2. When factors of production are allocated on a basis other than comparative advantage, the result is inefficient production. In other words, the opportunity cost of producing 2 widgets is now 4 gadgets. In the section of the curve shown here, the slope can be calculated between points B and B. The Federal Reserve lowered interest rates at their last meeting. These values are plotted in a production possibilities curve for Plant 1. Getting the most goods and services from the available resources, Which of the following will cause the production possibilities curve to shift inward? If the price of pencils rises, then we will see: A decrease in the size of the labor force, Which of the following is an example of government failure? d. Participants in the market do not have to make choices. Learn more about how Pressbooks supports open publishing practices. Need the goods and services the most. a. b. d. A shift in the function. Lesson 5: The law of increasing opportunity cost: As you increase the production of one good, the opportunity cost to produce the additional good will increase. These are also illustrated with a production possibilities curve. At this point, Econ Isle can produce 12 units of gadgets and 0 widgets. Finally, increasing by another 2, Econ Isle can produce 0 gadgets and 6 widgets. (Many students are helped when told to read this result as 2 pairs of skis per snowboard.) We get the same value between points B and C, and between points A and C. Figure 2.2 A Production Possibilities Curve. A lower quantity demanded of a good reflects, ceteris paribus: It loses the opportunity to produce 6 gadgets. a. The increase in resources devoted to security meant fewer other goods and services could be produced. a. Suppose a manufacturing firm is equipped to produce radios or calculators. The production-possibilities curve between tanks and automobiles will shift outward. b. Thus, the production possibilities curve not only shows what can be produced; it provides insight into how goods and services should be produced. A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes equilibrium price to: c. Karl Marx. A:According to the law of increasing opportunity cost, as a society produces more and more of a certain good, further production increases involve ever-greater opportunity costs, so that producing the good is associated with greater and greater trade-offs. 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