ECON 2305 1. Specialization and production possibilities Suppose Sweden produces

Question

ECON 2305

1. Specialization and production possibilities

Suppose Sweden produces only trucks and camcorders. The resources that are used in the production of these two goods are specialized—that is, some resources are more suitable for producing trucks than camcorders, whereas others are more suitable for producing camcorders than trucks.

The shape of Sweden’s production possibilities frontier (PPF) should reflect the fact that as Sweden produces more camcorders and fewer trucks, the opportunity cost of producing each additional camcorder ______________________________ (decreases, increases, remains constant).

Explanation / Answer

The shape of Sweden’s production possibilities frontier (PPF) should reflect the fact that as Sweden produces more camcorders and fewer trucks, the opportunity cost of producing each additional camcorder increases.

Reason: As per the law of increasing opportunity cost, as we move long a PPF, opportunity cost of producing an additional unit of a good increases.

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