Explain why the shape of production possibility frontier is bow-shaped
The production possibility frontier (PPF) is typically bow-shaped because of the concept of increasing opportunity cost. The PPF represents the maximum amount of two goods that can be produced with given resources and technology.
As resources are reallocated from one good to another, the opportunity cost of producing an additional unit of the second good increases. This is because resources are not equally suited to producing both goods - some resources are better suited to producing one good over another. As more resources are shifted towards producing the second good, the opportunity cost of producing that good increases, causing the PPF to bow outwards.
Additionally, the bow shape of the PPF also reflects the law of diminishing returns. As more resources are devoted to producing a particular good, the additional output gained from each additional unit of resources will eventually diminish. This is represented by the concave shape of the PPF as it reaches its limits.
Overall, the bow shape of the PPF illustrates the trade-offs and limitations faced by an economy in terms of producing different goods with finite resources.