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Microeconomics
The slope of a production possibility frontier can relay a lot of information
about the trade-offs faced by individuals in an economy PPF shows
all the possible production points if resources used to their full potential let's look at our
example of Jerry, who has stranded on an island by himself if we draw a PPF for Jerry it
would show the maximum amount of food he could collect during the day if he were
using all of his time. let's assume that Jerry can only collect bananas or catch
fish. the slope of his PPF shows us the trade-offs he's experiencing when making
decisions if Jerry is efficient. He is producing at a point on the frontier if
he wants to catch an additional fish he has to give up time gathering bananas
this trade-off involves moving between points along his PPF, and it shows his
opportunity cost in production which is the value of the next best alternative
given up when making a choice Jerry's PPF shows that at the same time
that he can catch two fish he could gather one bunch of bananas his opportunity cost
reflects that for every bit of additional time he spent sketching fish he has less time to
spend gathering bananas if Jerry's opportunity cost his constant that means he doesn't face
other costs like travel time every time he catches one more fish he gives up gathering half
a bunch of bananas by drawing a straight line PPF for Jerry we assume he faces
constant opportunity costs regarding his the decision of how many fish and bananas to
collect opportunity costs are not always constant and can often increase as more
of one item is being produced when opportunity costs increase the production possibility
frontier becomes a concave or bowed out curve increasing
opportunity costs occur when more resources need to be allocated to
produce the additional unit of the good even with increasing opportunity costs
jerry maximum number of fish caught and his maximum number of bananas gathered
are still the same because the endpoints of jerry's production possibility
frontier is determined by his available resources and technology which remain the same Jerry can
never gather more than 20 bananas in a given period no matter how many fish he catches
because he doesn't have the time to do that so why might Jerry experience increasing opportunity cost
because Jerry's only resources his time anything that makes the collection
of bananas or the caching of fish more time-intensive will affect his opportunity cost for example.
Jerry may need to climb higher to collect bananas from a tree, it will take more of his time
to collect the same number of bananas as before, which takes away from the time he can't
spend catching fish alternatively if he must go further into the ocean to catch fish he won't be able to spend as
much time collecting bananas now instead of a straight line jerry's production possibilities
frontier is a curved line which illustrates an increasing opportunity costs.
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