Why does the production possibilities curve bowed out

The reason is simply that, as a nation, certain resources are better suited for producing some goods then they are for other goods. Some resources would be better adapted for use with investment goods, for instance, than consumption goods. Resources are generally not perfectly adaptable for producing both categories of goods consumption vs. Therefore, increasing the output of a particular good, must use less efficient resources than those already used.

Hence the increasing opportunity cost of producing the additional units and the law of increasing cost. The more specialized the resources, the more bowed out the production possibility curve. The Second Robot cost 2W. Why is the law of increasing cost true? The rationale is quite simple.

Not all resources are the same. When we decide to produce the first Robot, we take the best engineers from the wheat fields and put them in the robot factory. Since these engineers are very good at producing Robots we don't need very many of them and Wheat production goes down only a little we lose only 1W.

When we decide to produce the second Robot we need to shift more engineers from the wheat fields, but now all the best engineers are already in the robot factories and we need to take the second-best engineers, and MORE OF THEM, to produce just one more Robot. So Wheat production goes down more than when we produced the first Robot.

If we are producing 4R and 10 W, all of our best farmers are in the wheat fields. To produce one more Robot the fifth we need to take all of these farmers and put them in the robot factories, because they are not very good at making Robots.

The law of increasing cost is true because resources not not all the same. Some are better at producing Wheat and some are better at producing Robots. How unemployment increases scarcity see the 5Es lesson can be demonstrated with the production possibilities model.

Point be represents 6W and 2R. This is less than the maximum that can be produced with our resources. We can produce 13W and 2R or 6W and 4R. If there are unemployed resources we produce LESS than the maximum possible. Ina previous lesson see 5Es we stated that productive inefficiency causes scarcity because less is produced. On our PPC this could be represented by point B. We can use the production possibilities model to demonstrate how economic growth can reduce scarcity.

Since this increase maximum output that we are able to produce it shifts the PPC outward. To achieve our new potential levels of output we also need full employment and productive efficiency.

It could be possible to have this type of economic growth so that we CAN produce the quantities represented by point E, but if there is unemployment and productive inefficiency we would be at a point beneath this new curve maybe point C.

So we may get new resources or new technology so we CAN produce more point E on PP2 , but if we don't use the new resources i. The most commonly used definition of economic growth is simply producing more.

When an economy increases its output it is often said to have achieved economic growth. On our graph this would be represented by moving from point D to a point on the curve: A, B, or C. More of both goods cannot be produced with the limited resources. On the chart, that is point F. The production possibility curve bows outward. The highest point on the curve is when you only produce one good, on the y-axis, and zero of the other, on the x-axis.

On the chart, that is Point A, where the economy produces , apples and zero oranges. The widest point is when you produce none of the good on the y-axis, producing as much as possible of the good on the x-axis. On the chart, that is point D: The society produces zero apples and 40, oranges. All the points in between are a trade-off of some combination of the two goods. An economy operates more efficiently by producing that mix. The reason is that every resource is better suited to producing one good over another.

Some land is better suited for apples, while other land is best for oranges. Society does best when it directs the production of each resource toward its specialty. The more specialized the resources, the more bowed-out the production possibility curve. The curve does not tell decision-makers how much of each good the economy should produce; it only tells them how much of each good they must give up if they are to produce more of the other good.

It is up to them to decide where the sweet spot is. In a market economy , the law of demand determines how much of each good to produce. In a command economy , planners decide the most efficient point on the curve.

They are likely to consider how best to use labor so there is full employment. An economy's leaders always want to move the production possibilities curve outward and to the right, and they can only do so with growth. The leaders must create more demand for either or both products. Only after that occurs can more resources be used to produce greater output. Supply-side economists believe the curve can be shifted to the right by simply adding more resources.

However, without demand, they will only succeed in creating underutilized resources. There, 50 pairs of skis could be produced per month at a cost of snowboards, or an opportunity cost of 2 snowboards per pair of skis.

The bowed-out shape of the production possibilities curve illustrates the law of increasing opportunity cost. Its downwards slope reflects scarcity. Figure 2. This production possibilities curve in Panel a includes 10 linear segments and is almost a smooth curve.

As we include more and more production units, the curve will become smoother and smoother. In an actual economy, with a tremendous number of firms and workers, it is easy to see that the production possibilities curve will be smooth.

We will generally draw production possibilities curves for the economy as smooth, bowed-out curves, like the one in Panel b. This production possibilities curve shows an economy that produces only skis and snowboards. Notice the curve still has a bowed-out shape; it still has a negative slope. Notice also that this curve has no numbers. Economists often use models such as the production possibilities model with graphs that show the general shapes of curves but that do not include specific numbers.

As we combine the production possibilities curves for more and more units, the curve becomes smoother. It retains its negative slope and bowed-out shape. In Panel a we have a combined production possibilities curve for Alpine Sports, assuming that it now has 10 plants producing skis and snowboards.

Even though each of the plants has a linear curve, combining them according to comparative advantage, as we did with 3 plants in Figure 2.