What economic concepts are represented in the production possibilities model?
What will be an ideal response?
There are a large number of economic concepts illustrated by the production possibilities frontier:
? Scarcity of resources: The production possibilities frontier is a frontier between attainable and unattainable combinations.
? Opportunity cost: The negative slope of the production possibilities frontier indicates that in order to get more of one good, you must produce less of the other (a tradeoff).
? Increasing opportunity cost: The bowed out production possibilities frontier represents the increasing opportunity cost when more of a good or service is produced.
? Efficiency: Points on the production possibilities frontier use all resources while points below the production possibilities frontier represent unemployment or misallocated resources.
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