The nationʹs production possibilities frontier is bowed outward. Suppose that the government decides to increase the production of armaments by $20 billion, and that as a result the output of consumer goods falls by $20 billion. If a further $20 billion increase beyond the initial $20 billion increase in armaments output is sought, we can expect that the output of consumer goods and services will fall further by

Question

Quizplus · Accepted Answer

The production possibilities frontier is bowed outward due to increasing opportunity costs. As more resources are allocated to armaments, the opportunity cost in terms of consumer goods increases, meaning the output of consumer goods will fall by more than $20 billion for the additional $20 billion increase in armaments.

The Nationʹs Production Possibilities Frontier Is Bowed Outward