Question

If an economy is subject to constant opportunity cost instead of exhibiting increasing opportunity cost, what would its production possibilities curve look like

Answer 1

Answer:

Straight-line production possibilities frontier curve

Explanation:

A production possibilities frontier (PPF) is the possible combination of goods that an economy can produce at a given time, with its existing technology and fully-utilized resources.

If an economy is subject to constant opportunity cost instead of exhibiting increasing opportunity cost, then it will have a straight-line production possibilities frontier curve.  In contrast, an economy with an increasing opportunity costs will have a bowed-outward PPF (concave downward).  This post will only discuss the straight-line PPF, as the prompt requires.

Straight-line production possibilities frontier curve: Constant opportunity cost

An economy that is subject to constant opportunity cost implies that it could only produce a specific number of one particular good. However, in order for that economy to produce that good, it must reduce the production of another good given its limited resources.

Example:

As an example, suppose we have an economy that could only produce two types of goods: shoes and t-shirts. In the attached screenshot of our fictional economy's straight-line PPF, it shows the possible combination of goods that   it can produce given its limited resources.  Point A shows that an economy must produce 0 t-shirts to produce 4 pairs of shoes. In Point B, it must produce 1 t-shirt in order to produce 3 pairs of shoes.  An economy must produce a combination of 2 t-shirts and 2 pairs of shoes in Point C; 1 pair of shoes and 3 t-shirts in Point D; and 4 t-shirts and 0 pairs of shoes for Point E.