Which concept does the Production Possibilities Frontier (PPF) illustrate when showing the trade-off between producing two goods?

• A. Opportunity cost
• B. Market equilibrium
• C. Marginal utility
• D. Price elasticity

Answer: (A)

Verified step by step guidance

1. Understand that the Production Possibilities Frontier (PPF) is a curve that shows the maximum possible output combinations of two goods that an economy can produce given its resources and technology.
2. Recognize that moving along the PPF involves shifting resources from the production of one good to another, which means producing more of one good results in producing less of the other.
3. Identify that this trade-off between the two goods represents the concept of opportunity cost, which is the value of the next best alternative foregone when making a choice.
4. Note that market equilibrium, marginal utility, and price elasticity are different economic concepts that relate to markets, consumer preferences, and responsiveness to price changes, respectively, and are not illustrated by the PPF.
5. Conclude that the PPF primarily illustrates the concept of opportunity cost by showing how producing more of one good requires sacrificing some amount of the other good.