Title
Production Possibility Curve - Increasing Cost-Decreasing Returns (2)Creator
Nikita Lyssenko, Memorial University of Newfoundland. Distance Education, Learning and Teaching Support (DELTS)Description
In part A, the production of guns is reduced by constant increments, and the resulting increases in the production levels of the other good are observed as the adjustment occurs along the frontier. The constant reduction in the production of guns creates expanded production of butter.
However, the additional gain obtained in added butter production is less and less with each additional reduction in gun production.
As the resources move from the production of one good to the production of the other good, there are smaller additional gains in output because the factors in their new employment lack some of the skills needed in the production of the alternative good.
In part B, a similar presentation is made with butter increasing in constant amounts. The important point is that the size of each reduction in guns grows larger as the constant growth in the increments of butter production takes place. This shows the increasing cost side of the argument.
In economics, whenever you see the word
Learning Design
Look at the market economy as self-organizing system where coordination and order emerge from a large number of decentralized decisions.Date Created
2013Format
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