Macroeconomics

‭2.‬ ‭Increasing‬‭opportunity‬‭cost:‬ ‭When‬‭the‬‭PPC‬‭is‬ ‭curved‬‭outwards‬‭(bowed‬‭out)‬ ‭,‬‭the‬‭opportunity‬ ‭cost‬‭changes‬‭as‬‭the‬‭economy‬‭moves‬‭from‬‭one‬‭point‬‭to‬‭another.‬‭For‬‭each‬‭additional‬‭unit‬‭of‬‭one‬ ‭good‬‭produced,‬ ‭the‬‭opportunity‬‭cost‬‭of‬‭producing‬‭it‬‭gets‬‭larger‬ ‭and‬‭larger‬‭as‬‭the‬‭production‬‭of‬ ‭the‬ ‭second‬ ‭good‬ ‭decreases.‬ ‭This‬ ‭is‬ ‭known‬ ‭as‬ ‭the‬ ‭law‬ ‭of‬ ‭increasing‬ ‭opportunity‬ ‭cost‬ ‭that‬ ‭mostly applies when two products require different factors of production.‬ ‭Example:‬ ‭In the following PPC, we can calculate the‬‭following per unit opportunity costs:‬ ‭●‬ ‭Movement from C to D: 1 airplane per yacht‬ ‭●‬ ‭Movement from D to E: 2 airplanes per yacht‬ ‭Notice‬ ‭how‬ ‭the‬ ‭opportunity‬ ‭cost,‬ ‭or‬ ‭the‬ ‭quantity‬ ‭of‬ ‭airplanes‬ ‭foregone‬ ‭to‬‭produce‬‭more‬‭yachts,‬ ‭increased from one point to another.‬

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