Opportunity Cost and the Production Possibilities Curve
| English | Chinese | Pinyin |
|---|---|---|
| opportunity cost | 机会成本 | jī huì chéng běn |
| production possibilities curve | 生产可能性曲线 | shēng chǎn kě néng xìng qū xiàn |
| efficient | 有效率 | yǒu xiào lǜ |
| increasing opportunity cost | 机会成本递增 | jī huì chéng běn dì zēng |
| economic growth | 经济增长 | jīng jì zēng zhǎng |
The road you build is the school you don't
- A government has a fixed pool of workers, steel, and money.
- Spend it on a new motorway, and those same resources can't build a hospital.
- The real cost of the road isn't just dollars — it's the hospital forgone.
- Economists capture this with opportunity cost 机会成本.
Opportunity cost
- The opportunity cost of a choice is the value of the single best alternative you give up.
- It is measured in what you sacrifice, not only in money.
- The opportunity cost of a new road is the schools or hospitals those resources could have built instead.
The opportunity cost of a choice is:
It is the next-best alternative sacrificed — measured in what you give up, not just money.
The production possibilities curve
- The production possibilities curve 生产可能性曲线 (PPC) shows the most an economy can make of two goods.
- Points on it are efficient 有效率; points inside are wasteful (a recession looks like this); points outside are unattainable.
- It usually bows outward — increasing opportunity cost 机会成本递增, since resources aren't equally suited to both goods.
Explore the production possibilities curve
Making more of one good means giving up some of the other — the opportunity cost. Drag along the curve, then grow the economy to push the whole frontier outward.
An economy producing at a point inside its PPC is:
Inside the curve, some resources are unused — a recession looks like this.
A PPC that bows outward reflects increasing opportunity cost.
Resources are not equally suited to both goods, so each extra unit costs more of the other.
Economic growth shifts it out
- Worked idea. At point A an economy makes 60 consumer and 10 capital goods; at B, 50 consumer and 25 capital.
- Moving A → B it gains 15 capital goods by giving up 10 consumer, so each capital good costs $10/15 \approx 0.67$ consumer goods.
- Choosing more capital goods today sacrifices consumer goods now, but shifts the whole curve outward later.
- That outward shift — from more resources, better skills, or new technology — is economic growth 经济增长.
Moving from A (60 consumer, 10 capital) to B (50 consumer, 25 capital), what is the opportunity cost of ONE capital good, in consumer goods?
Give up 10 consumer to gain 15 capital, so each capital good costs $10/15 \approx 0.67$ consumer goods.
When the whole PPC shifts outward from more or better resources, we call it economic ______.
Economic growth is the outward shift of the production possibilities curve.
Select all that shift an economy's PPC outward.
Capital, technology and skills grow the economy; a recession just moves production inside the curve.
Opportunity cost is the value of the best alternative given up. The PPC shows it: on = efficient, inside = wasteful, outside = unattainable, with an outward bow for increasing opportunity cost. Investing in capital goods today drives economic growth — the curve shifting outward.