When the curve shifts outward, or to the right, that means output is increasing. When the curve shifts inward, or to the left, that means output is decreasing.

A war taken place in the US soil leads to reduction in capital stock, potential resources and also kills people. This in turn shifts the US’s PPF inward. Production possibilities frontier (PPF) curve: PPF curve refers to the combinations of goods and services that can be produced using available resources.

Increases in unemployment or inefficiency move the production point further from the PPF (toward the origin) representing less output of goods and services. (But if additional resources are acquired or technology increases productivity, it may be possible to move the entire PPF in that direction.)

What condition must hold for the production possibilities frontier to be bowed outward (concave downward)? To be a straight line? To be bowed outward the opportunity costs must be increasing, and to be a straight line the opportunity costs must be constant. You just studied 3 terms!

The usual PPF is bowed outward because some resources are more suited to the production of one good than another (the law of increasing opportunity cost). But the resources used for making films are probably equally suitable for both features and shorts, so a straight-line PPF makes sense in this case.

When the PPC is a straight line, opportunity costs are the same no matter how far you move along the curve. When the PPC is concave (bowed out), opportunity costs increase as you move along the curve. When the PPC is convex (bowed in), opportunity costs are decreasing.

Key Points The PPF captures the concepts of scarcity, choice, and tradeoffs. The shape of the PPF depends on whether there are increasing, decreasing, or constant costs. Points that lie on the PPF illustrate combinations of output that are productively efficient.

According to the PPF, points A, B, and C on the PPF curve represent the most efficient use of resources by the economy. Point X represents an inefficient use of resources, while point Y represents a goal that the economy simply cannot attain with its present levels of resources.

A straight line PPF: A straight line PPF where the opportunity cost is constant. The slope of the PPF shows the rate at which the production of one good can be transferred to another.

2 Chapter 1 Under what circumstances would the production possibility curve be (a) a straight line; (b) bowed in toward the origin? This will occur when resources are equally suited to producing either good. This might possibly occur in our highly simplified world of just two goods. In the real world it is unlikely.