Figure 2.1

-The production possibilities curve in Figure 2.1 illustrates the notion of
A) increased factory goods production.
B) increased farm produce production.
C) diminishing resources.
D) opportunity cost.

Question

Figure 2.1
 
-The production possibilities curve in Figure 2.1 illustrates the notion of
A) increased factory goods production. 
B) increased farm produce production. 
C) diminishing resources. 
D) opportunity cost.

Quizplus · Accepted Answer

The production possibilities curve illustrates the concept of opportunity cost, which is the trade-off between producing one type of good or service versus another. As you produce more of one good, you have to give up some production of another good. This is shown by the slope of the curve, which represents the diminishing marginal rate of substitution between the two goods. As you move along the curve, the opportunity cost of producing one unit of the first good increases, because you have to give up more production of the second good. Therefore, the best choice is D, which describes the concept of opportunity cost.

Figure 2.1 -The Production Possibilities Curve in Figure 2.1 Illustrates the Notion