Bowed-Out Curve

Definition

A bowed-out curve, also known as a concave curve, is a graphical representation of the production possibilities frontier (PPF) that is curved outward from the origin. This curve depicts the maximum combinations of two goods that an economy can produce given its available resources and technology.

5 Must Know Facts For Your Next Test

1. The bowed-out shape of the PPF curve reflects the principle of increasing opportunity cost, where the opportunity cost of producing an additional unit of a good increases as more of that good is produced.
2. The curvature of the bowed-out PPF curve indicates that as an economy shifts production from one good to another, the opportunity cost of producing the second good increases.
3. The bowed-out shape of the PPF curve also reflects the idea of comparative advantage, where different producers have different costs of production for different goods.
4. The bowed-out PPF curve suggests that an economy cannot produce at a point outside the curve, as this would require more resources or technology than are currently available.
5. The position and shape of the bowed-out PPF curve can shift due to changes in an economy's resources, technology, or social choices.

Review Questions

• Explain how the bowed-out shape of the production possibilities frontier (PPF) curve reflects the principle of increasing opportunity cost.
  • The bowed-out shape of the PPF curve reflects the principle of increasing opportunity cost, where the opportunity cost of producing an additional unit of a good increases as more of that good is produced. As an economy shifts production from one good to another, the opportunity cost of producing the second good increases. This is because the economy must give up more of the first good to produce an additional unit of the second good, indicating that the resources used to produce the goods have different productivities and are not perfectly substitutable.
• Describe how the bowed-out shape of the PPF curve is related to the concept of comparative advantage.
  • The bowed-out shape of the PPF curve is related to the concept of comparative advantage, where different producers have different costs of production for different goods. The curvature of the PPF curve suggests that as an economy shifts production from one good to another, the opportunity cost of producing the second good increases. This is because different producers have different relative productivities for the two goods, leading to comparative advantages and the bowed-out shape of the PPF curve.
• Analyze how changes in an economy's resources, technology, or social choices can affect the position and shape of the bowed-out PPF curve.
  • The position and shape of the bowed-out PPF curve can shift due to changes in an economy's resources, technology, or social choices. An increase in resources, such as capital or labor, would shift the PPF curve outward, allowing the economy to produce more of both goods. Advancements in technology that improve the productivity of resources would also shift the PPF curve outward. Additionally, changes in social choices, such as preferences for one good over another, can affect the slope and curvature of the bowed-out PPF curve, reflecting the opportunity costs associated with the production of the two goods.

Related terms

Production Possibilities Frontier (PPF): The PPF is a graphical model that shows the maximum possible combinations of two goods an economy can produce given its limited resources and existing technology.

Opportunity Cost:

The opportunity cost is the value of the next best alternative foregone when making a choice.

Scarcity:

Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.