A downward shift of the supply curve. Producing 100 snowboards at Plant 2 would leave Alpine Sports producing 200 snowboards and 200 pairs of skis per month, at point C. If the firm were to switch entirely to snowboard production, Plant 1 would be the last to switch because the cost of each snowboard there is 2 pairs of skis. Plant 3 would be the last plant converted to ski production. Once again, this is made possible because of trade-offs. So along the straight line, each time Econ Isle increases widget production by 2, it loses the opportunity to produce 4 gadgets. Plant R has a comparative advantage in producing calculators. Such specialization is typical in an economic system. Production totals 350 pairs of skis per month and zero snowboards. In the transition to widget production, workers would likely need training and time to develop the skills required to be as productive at making widgets as making gadgets. Ceteris paribus, which of the following is most likely to shift both the demand and the supply curve? D. a line that curves inward when resources are perfectly adaptable in the production of different goods, B. A. producing a combination of goods and services beyond the production possibilities curve Figure 2.4 Production Possibilities at Three Plants shows production possibilities curves for each of the firms three plants. The price increases but the change in the quantity cannot be determined Transcribed image text: According to the law of increasing additional cost, the opportunity cost of producing O A. corn is likely to increase as society tries to produce more beans. To shift from B to B, Alpine Sports must give up two more pairs of skis per snowboard. But this time we'll consider opportunity cost that varies along the frontier. The reason for the law of increasing opportunity cost is due to the fact that some resources are not well suited for b. The production possibilities curves for the two plants are shown, along with the combined curve for both plants. Price. There, 50 pairs of skis could be produced per month at a cost of 100 snowboards, or an opportunity cost of 2 snowboards per pair of skis. We shall consider two goods and services: national security and a category we shall call all other goods and services. This second category includes the entire range of goods and services the economy can produce, aside from national defense and security. Markets necessarily have a physical location. At this point, if Econ Isle produces 6 gadgets, it can produce only 4 widgets, so it loses the opportunity to produce 4 gadgets. McNEESE State University Assig, Statistical Techniques in Business and Economics, Douglas A. Lind, Samuel A. Wathen, William G. Marchal, Fundamentals of Engineering Economic Analysis, David Besanko, Mark Shanley, Scott Schaefer. c. An increase in the demand for corn syrup. c. The quantity increases but the change in the price cannot be determined c. The market demand curve intersects the y-axis. We will make use of this important fact as we continue our investigation of the production possibilities curve. Supply curves are upward-sloping to the right. Lower equilibrium price. c. The allocation of resources by the market is likely to be the best possible, given scarce resources and income The related concept of marginal cost is the cost of producing one extra unit of something. A market in which final goods and services are exchanged is a: When an economy is producing efficiently it is: The increase in resources devoted to security meant fewer other goods and services could be produced. b. d. Number of buyers, A shift in supply is defined as a change in: The market mechanism: c. Congress increased the minimum wage rate in January. A straight line when there is constant opportunity costs First, the economy might fail to use fully the resources available to it. a. The law also applies as the firm shifts from snowboards to skis. d. Jenny's wage rate rose and, in response, she decided to work more hours. According to the law of increasing opportunity costs, A. the more one is willing to pay for resources, the smaller will be the possible level of production B. increasing the production of a particular good will cause the price of the good to remain constant C. When the frontier line itself moves, economic growth is under way. Whether you realize it or not, the economy has a frontierit has an outer limit of economic production. The economy produces SA units of security and OA units of all other goods and services per period. Ceteris paribus, if the subsidies given to corn syrup producer decrease, then we can expect: c. The market mechanism has failed to achieve social efficiency. In that case, it produces no snowboards. d. A shift in the function. c. Shortages. Below is the full transcript of this video presentation. The production possibilities model does not tell us where on the curve a particular economy will operate. Such an allocation implies that the law of increasing opportunity cost will hold. B. 100% (6 ratings) The correct option is C- cost of producing corn is likely to in . Law of Increasing Opportunity Cost: Definition & Concept It is equally possible that, had the company chosen new equipment, there would be no effect on production efficiency, and profits would remain stable. Answer: The statement is: True. d. The government is allocating resources inefficiently. d. The market supply curve intersects the x-axis. 1. a. Question: According to the law of increasing opportunity costs, A. Intermediate goods; final goods and services In other words, the opportunity cost of producing 2 widgets is now 4 gadgets. To find this quantity, we add up the values at the vertical intercepts of each of the production possibilities curves in Figure 2.4 Production Possibilities at Three Plants. b. A. the production possibilities curve between tanks and automobiles will appear as a straight line A lower quantity demanded of a good reflects, ceteris paribus: Lower income. The table shows the combinations of pairs of skis and snowboards that Plant 1 is capable of producing each month. First, remember that opportunity cost is the value of the next-best alternative when a decision is made; it's what is given up. d. For whom the output is produced and the mix of output to be produced. d. The supply of building materials to Florida will increase. In applying the model, we assume that the economy can produce two goods, and we assume that technology and the factors of production available to the economy remain unchanged. If the firm were to produce 100 snowboards at Plant 3, ski production would fall by 50 pairs per month (recall that the opportunity cost per snowboard at Plant 3 is half a pair of skis). Figure 2.9 Efficient Versus Inefficient Production. Although the production possibilities frontierthe PPFis a simple economic model, it's a great tool for illustrating some very important economic lessons: The frontier line illustrates scarcitybecause it shows the limits of how much can be produced with the given resources. Greater production of one good requires increasingly larger sacrifices of other goods. However, a straight line doesn't best reflect how the real economy uses resources to produce goods. All the consumer desires are satisfied and business profits are maximized. The answer is Yes, and the key lies in comparative advantage. Explain the concept of the production possibilities curve and understand the implications of its downward slope and bowed-out shape. Thus, the production possibilities curve not only shows what can be produced; it provides insight into how goods and services should be produced. d. Participants in the market do not have to make choices. The opportunity cost of choosing this option is then 12% rather than the expected 2%. c. Through government mandate. c. Supply curves are downward-sloping to the right. c. Find the average quantity demanded at each price. Opportunity cost is the trade-off that one makes when deciding between two options. c. Finished services are bought and sold. Learn more about the Q&A Resources for Teachers and Students . c. Inefficient incentives d. There is a surplus of the good. Figure 2.5 The Combined Production Possibilities Curve for Alpine Sports. In Plant 2, she must give up one pair of skis to gain one more snowboard. d. Everyone who wants a good or service can have it. An Emerging Consensus: Macroeconomics for the Twenty-First Century, 33.1 The Nature and Challenge of Economic Development, 33.2 Population Growth and Economic Development, 34.1 The Theory and Practice of Socialism, 34.3 Economies in Transition: China and Russia, Appendix A.1: How to Construct and Interpret Graphs, Appendix A.2: Nonlinear Relationships and Graphs without Numbers, Appendix A.3: Using Graphs and Charts to Show Values of Variables, Appendix B: Extensions of the Aggregate Expenditures Model, Appendix B.2: The Aggregate Expenditures Model and Fiscal Policy. The production-possibilities curve between tanks and automobiles will shift outward. Use the production possibilities model to distinguish between full employment and situations of idle factors of production and between efficient and inefficient production. d. From 2007 to 2008 the demand curve for MP3 players was upward sloping because of improved technology. At point A, Alpine Sports produces 350 pairs of skis per month and no snowboards. In other words, the opportunity cost of producing 2 widgets is now 6 gadgets. Increasing opportunity cost is important in business and economics because it describes the danger of a complete shift into non-production. a. Clearly, the transfer of resources to the effort to enhance national security reduces the quantity of other goods and services that can be produced. Change in y coordinates between two points divided by the change in their x coordinates. In reality, however, opportunity cost doesn't remain constant. Two things could leave an economy operating at a point inside its production possibilities curve. a. B. d. Labor market. In 2007 a company sold 35,000 MP3 players at $150 each. a. Plant 3s comparative advantage in snowboard production makes a crucial point about the nature of comparative advantage. c. The changing relationship between the two variables. c. Decreases as its price falls, ceteris paribus. Comparative advantage thus can stem from a lack of efficiency in the production of an alternative good rather than a special proficiency in the production of the first good. We would say that Plant 1 has a comparative advantage in ski production. c. An increase in the supply of pens. Assume that steel is used to produce monkey wrenches. Of course, an economy cannot really produce security; it can only attempt to provide it. It is operating efficiently. Suppose further that all three plants are devoted exclusively to ski production; the firm operates at A. d. There will be a movement to the left along the initial demand curve. Find the average value VVV of the given function over the specified interval. a. If Alpine Sports were to produce still more snowboards in a single month, it would shift production to Plant 2, the facility with the next-lowest opportunity cost. One, of course, was increased defense spending. Increases as its price falls, ceteris paribus. Required use of pollution-control technology that is obsolete a. Suppose Alpine Sports operates the three plants we examined in Figure 2.4 Production Possibilities at Three Plants. Currently, employees in the U.S rely mainly on the employers who offer the wages, salaries and benefits, such as retirement, paid leaves and health insurance as an addition to the total package of compensation (Carraher, 2011). Higher opportunity costs induce higher output per unit of input. Assume that pencils and pens are substitutes. The production of both goods rises. 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. one airline if the other one goes out of business? According to the law of increasing opportunity cost, as a society produces more and more of a certain good, further production increases involve ever-greater opportunity costs, so that producing the good is associated with greater and greater trade-offs. With all three plants producing only snowboards, the firm is at point D on the combined production possibilities curve, producing 300 snowboards per month and no skis. The Production Possibilities Frontier (PPF) is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. So let's compare straight and curved frontier lines to better understand what is more likely to happen when production changes. The cost of bait, any other monetary expenses, and the value of the best alternative use of the individual's time. Learn more about how Pressbooks supports open publishing practices. It can shift to ski production at a relatively low cost at first. c. 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