Which of the following is an illustration of the law of increasing opportunity costs?

• A. The production possibilities frontier is a straight line.
• B. As more of good X is produced, the amount of good Y that must be given up increases.
• C. The opportunity cost of producing good X decreases as more of it is produced.
• D. Producing more of good X always requires giving up the same amount of good Y.

Answer: (B)

Verified step by step guidance

1. Understand the concept of the law of increasing opportunity costs: it states that as production of one good increases, the opportunity cost (in terms of the other good forgone) increases because resources are not equally efficient in producing all goods.
2. Recall that the production possibilities frontier (PPF) illustrates opportunity costs. A bowed-out (concave) PPF reflects increasing opportunity costs, while a straight-line PPF indicates constant opportunity costs.
3. Analyze each option in the problem: a straight-line PPF means constant opportunity costs, so it does not illustrate increasing opportunity costs.
4. The statement 'As more of good X is produced, the amount of good Y that must be given up increases' directly describes increasing opportunity costs, matching the law's definition.
5. Conclude that the correct illustration of the law of increasing opportunity costs is the option where producing more of good X requires giving up increasing amounts of good Y.