Seema and Nandita were discussing about the the economics class test. Seema said, “ Nandita, the exam was very tough. One of the characteristic of PPC is that it slopes downward, I couldn’t recall the second one. Could you please help me do the same? According to you what was Nandita’s reply?
Answer & explanation
Correct answer: option 2
The correct answer is option 2: PPC is concave to the origin
The Production Possibility Curve (PPC) has two main characteristics:
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It slopes downward → This represents the concept of opportunity cost. To produce more of one good, some quantity of the other good must be sacrificed.
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It is concave to the origin → This happens because of the Law of Increasing Opportunity Cost, which states that as more resources are allocated to producing one good, the opportunity cost of producing additional units increases.