Suppose PPC1 is a straight line and PPC2 is bowed outward. What type of opportunity costs do PPC1 and PPC2 illustrate?

• A. PPC1 illustrates constant opportunity costs, while PPC2 illustrates increasing opportunity costs.
• B. Both PPC1 and PPC2 illustrate constant opportunity costs.
• C. Both PPC1 and PPC2 illustrate decreasing opportunity costs.
• D. PPC1 illustrates increasing opportunity costs, while PPC2 illustrates constant opportunity costs.

Answer: (A)

Verified step by step guidance

1. Understand that a Production Possibility Curve (PPC) shows the trade-offs between two goods that an economy can produce, given fixed resources and technology.
2. Recognize that a straight-line PPC (PPC1) implies that the opportunity cost of producing one good in terms of the other remains constant as production shifts between the two goods.
3. Know that a bowed-outward PPC (PPC2) indicates increasing opportunity costs, meaning that as more of one good is produced, the economy must give up increasingly larger amounts of the other good.
4. Recall the definitions: constant opportunity cost means the slope of the PPC is constant, while increasing opportunity cost means the slope becomes steeper as you move along the curve.
5. Match the shapes to the types of opportunity costs: PPC1 (straight line) illustrates constant opportunity costs, and PPC2 (bowed outward) illustrates increasing opportunity costs.