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.
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