Monday, March 17, 2014

Does having no opportunity cost imply a direct proportional relationship between the two goods/services in a PPC diagram?

Answer: No. Explanation: A direct proportional relationship would suggest that as more of good x is produced, more of good y must be produced at the same time. When there is no opportunity cost for producing good y (perhaps because it is a single-use factor such as a wind turbine; good y would represent electricity produced from wind energy), it just means that when i produce more of good y, i do not have to forgo on any unit of good x. But it does not necessitate that good x must be produced at the same time.

Friday, March 14, 2014

The Unrealistic Case of Decreasing Opportunity Cost


No realistic example for decreasing opportunity cost. You do not have to consider this case.

Adapted from example given by www.class.csupomona.edu/ec/aebres/ec201/ppcnotes.doc