This lesson on changing the production possibilities curve will be on the Basic Economic Concepts portion of the AP examination(s).
As we learned in the last lesson, the production possibilities curve shows the relationship between two options (one on the x-axis, the other on the y-axis) and how the opportunity cost of obtaining one over the other changes.
We also learned that opportunity cost tends to increase as the production of a good increases, giving the curve its shape.
However, there are cases in which the production possibilities curve is not curved.
For example, let us assume that the production abilities of Super Snacks change such that their new combinations of production are as shown in the table.
If we analyze the opportunity cost from point to point within the table, we can notice a clear trend: for every taco produced, the production of 4 burritos is foregone each and every time. This is a situation in which a pair of goods has a constant opportunity cost.
These production combinations are also shown in the graph above. As you can see, this production possibilities curve is not a curve but rather a straight line, which represents the constant opportunity cost of these two goods.
However, this is quite unrealistic.
Now, let's view another variation of the production possibilities curve. Let's assume that Super Snack's machinery somehow allows them to produce 8 burritos regardless of how many tacos they decide to produce.
In this case, there is zero opportunity cost for producing burritos. This situation is impossible, but let's look at the production possibilities curve for this scenario.
As you can see, there is a constant slope of zero, which demonstrates that there is no opportunity cost for producing burritos. This is another example of the fact that the behavior of the slope of a production possibilities curve demonstrates which type of curve it is.
The two variations of production possibilities curves which we learned are largely theoretical (with the zero opportunity cost curve being extremely improbable), but are still useful as they characterize the relationship between slope and type of production possibilities curve.
In future lessons, we will explore how the production possibilities can be shifted.
Review Question(s)
As we learned in the last lesson, the production possibilities curve shows the relationship between two options (one on the x-axis, the other on the y-axis) and how the opportunity cost of obtaining one over the other changes.
We also learned that opportunity cost tends to increase as the production of a good increases, giving the curve its shape.
However, there are cases in which the production possibilities curve is not curved.
For example, let us assume that the production abilities of Super Snacks change such that their new combinations of production are as shown in the table.
If we analyze the opportunity cost from point to point within the table, we can notice a clear trend: for every taco produced, the production of 4 burritos is foregone each and every time. This is a situation in which a pair of goods has a constant opportunity cost.
These production combinations are also shown in the graph above. As you can see, this production possibilities curve is not a curve but rather a straight line, which represents the constant opportunity cost of these two goods.
However, this is quite unrealistic.
Now, let's view another variation of the production possibilities curve. Let's assume that Super Snack's machinery somehow allows them to produce 8 burritos regardless of how many tacos they decide to produce.
In this case, there is zero opportunity cost for producing burritos. This situation is impossible, but let's look at the production possibilities curve for this scenario.
As you can see, there is a constant slope of zero, which demonstrates that there is no opportunity cost for producing burritos. This is another example of the fact that the behavior of the slope of a production possibilities curve demonstrates which type of curve it is.
The two variations of production possibilities curves which we learned are largely theoretical (with the zero opportunity cost curve being extremely improbable), but are still useful as they characterize the relationship between slope and type of production possibilities curve.
In future lessons, we will explore how the production possibilities can be shifted.
Key Terms
Constant Opportunity Cost - A situation in which the cost of producing an additional unit of a product does not change, regardless of how many units are produced.
Zero Opportunity Cost - A situation in which there is no cost of producing an additional unit of a product.
Review Question(s)
5. Which of these situations is most common and realistic?
a) A production possibilities curve with increasing opportunity cost.
b) A production possibilities curve with zero opportunity cost.
c) A production possibilities curve with constant opportunity cost.
Resources
To review key terms, go to the Quizlet here: https://quizlet.com/324511563/unit-1-lesson-4-variations-of-the-productions-possibilities-curve-flash-cards/?new
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