Why is the production possibilities curve bowed outward?
The reason is because of the law of increasing opportunity cost. Go back to the preceding paragraph. The economy had to give up 2 widgets to get 1 more widget. What if the economy now wants to produce 3 gidgets. Notice from the table that the opportunity cost of going from 2 to 3 gidgets is 3 widgets. So the opportunity cost of additional gidgets gets larger as more gidgets are sought. If they want 4 gidgets, the opportunity cost of that is 4 widgets. All economies face this phenomenon of increasing opportunity cost. The final question is why would there be increasing opportunity costs–why would you have to give up increasing numbers of widgets to obtain an additional gidget? The reason is that to produce more gidgets, resources (land, labor, capital and entrepreneurship) have to be moved out of widget production and into gidget production. Resources are not as good at producing gidgets as they were at producing widgets. In the United States resources, over time, have switched from fa
