Click on the apple Also, I guess that the law of increasing opportunity cost is the opposite of economies of scale. This little known plugin reveals the answer. If Econ Isle's production moved in the opposite direction, from all gadgets to all widgets, the law would still hold: As you increase the production of one good, the opportunity cost to produce the additional good increases. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost Source: Study Guide 26) If opportunity costs are increasing, then the production possibilities frontier A) will be bowed out and have a positive slope. 22.The law of increasing opportunity cost reflects the fact that a. the production possibilities frontier is bowed inward b. resources are not perfectly substitutable c. resources cannot always be used efficiently d. an economy will operate at a point inside the production possibilities frontier e. an economy will operate at a point along the production possibilities frontier Secondly, the choice of comparisons can play a crucial part in cost effectiveness analysis, affecting the measurement of opportunity cost. Which of the following is a characteristic of a pure command economy? Think of a (very) small economy in which only two goods are produced, say, guns and butter. D) has a steeper slope throughout than curve B. Law of Increasing Opportunity Cost: reflects upon the bowed-out shape of the PPF. If, say, you pay your staff overtime to meet a sudden rush in demand, the added salary cost means your cost per item goes up. Up to this point we've graphed the PPF as a straight line. 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. to get started. At this point, Econ Isle can produce 10 gadgets and 2 widgets. For these data, the law of increasing opportunity costs is reflected in the fact that: the production possibilities data would graph as a straight downsloping line. After many years in the teleconferencing industry, Michael decided to embrace his passion for At this point, if Econ Isle produces 6 gadgets, it can produce only 4 widgets, so it loses the opportunity to produce 4 gadgets. More of one good and less of the other. When you start increasing the number of guns made you're going to move the people who are better at gun production over because they make guns more efficiently. Businesses can make use of it when planning production quotas of different products. Economic Growth: Reflects upon the outward shift in the PPF. Malcolm’s other interests include collecting vinyl records, minor More restricted perspectives may mask the fact that costs are simply being shifted to another sector rather than being saved. In other words, the opportunity cost of producing 2 widgets is now 6 gadgets. One way to understand how the law of increasing opportunity cost functions is to consider a farmer who is deciding how to allocate plats of farmland to the growth of two crops. Think about just the labor. If you feel the urge to torture yourself some more, let me know if you have any questions. In general, as the economy increases the quantity supplied of a good, the opportunity cost increases. D) reflects the existence of increasing opportunity cost. a. all resources are privately owned b. economic activity is coordinated by the price system The Bank On movement is designed to improve the financial stability of America’s unbanked and underbanked. The law of increasing opportunity cost reflects the fact that: (A) the production possibilities frontier is bowed inward. The opportunity cost is representative of what could be gained by using those resources in a different way and how that use compares to the benefits ultimately generated by the option that was selected. maximize utility. Learn about a little known plugin that tells you if you're getting the best price on Amazon. So let's compare straight and curved frontier lines to better understand what is more likely to happen when production changes. Ideally an interven› Central Banker: News from the St. Louis Fed, In Plain English: Making Sense of the Federal Reserve, Economics and Personal Finance Glossary and Flashcards, Materials and Videos from Featured Events, Center for Household Financial Stability HOME, Manuals, Regulations, Laws & Other Guidance, The Production Possibilities Frontier - The Economic Lowdown Video Series, Segment 1: The PPF Illustrates Scarcity and Opportunity Cost, Segment 2: The PPF Illustrates Underemployment, Economic Expansion, and Economic Growth, Factors of Production/Productive Resources, Learn more about Econ Ed at the St. Louis Fed, Contact our economic education specialists, In Plain English - Making Sense of the Federal Reserve. Good, the opportunity cost torture yourself some more, let me know if you thinking... On the shape of the frontier line of plant sizes are available so it not... If the price of a pure command economy costs are reflected in the concave-from-the-origin shape of curve. 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