How does a production possibilities frontier (PPF) help illustrate the concept of opportunity cost?

• A. By displaying only the maximum output of a single good, ignoring the production of other goods.
• B. By showing the trade-offs between two goods, the PPF demonstrates that producing more of one good requires sacrificing some of the other, which represents the opportunity cost.
• C. By illustrating the equilibrium price and quantity in a competitive market.
• D. By indicating the total amount of resources available in an economy without showing any trade-offs.

Answer: (B)

Verified step by step guidance

1. Understand that a 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 points on the PPF represent efficient production levels where all resources are fully utilized, while points inside the curve indicate inefficiency and points outside are unattainable with current resources.
3. Note that moving along the PPF involves shifting resources from producing one good to producing more of the other good, which means increasing the output of one good comes at the cost of reducing the output of the other.
4. Define opportunity cost as the value of the next best alternative foregone when making a choice; in the context of the PPF, it is the amount of one good that must be given up to produce an additional unit of the other good.
5. Conclude that the PPF visually illustrates opportunity cost by showing the trade-offs between the two goods, making it clear that producing more of one good requires sacrificing some quantity of the other good.