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The law of supply states that as the price of a good increases, the quantity of that good supplied increases. b. increases in wages cause increases in the opportunity costs of production. In that lesson, we examined the tradeoffs an individual faces in the use of her time between “work” and “play”. Imagine you are a manager at a burger restaurant. The Law of Increasing Opportunity Cost and the PPC Model In a previous lesson we introduced the basic economic concepts of scarcity, opportunity cost, and the production possibilities curve (PPC). Mr. Clifford's app is now available at the App Store and Google play. (B) constant opportunity cost (C) decreasing opportunity cost (D) the law of comparative advantage. ; Graph 4: Draw a production possibilities model for North Korea and label the Y axis Guns, and the X axis Butter. The law of increasing opportunity costs says that, as we produce more of a particular good, the opportunity cost of producing that good increases. A PPC that is bowed inward i ndicates that as the output of one good increases, the opportunity cost of (in terms of the quantity of the other good that must be given up) decreases. The law of increasing opportunity cost is fundamental to the law of supply. The main reason for this is … If all our resources are devoted to the production of G, we find that we can produce 40 units of G . Essentially, this law states that, as additional units of a good are manufactured, the opportunity cost associated with that production will also increase. Thus, increasing opportunity cost results in increased price and increased supply. The graph in Figure 1 demonstrates (A) increasing opportunity cost. This is easy to see while looking at the graph, but opportunity cost can also be calculated simply by dividing the cost of what is given up by what is gained. Using the two points, explain the concept of government (or market) failure. one more quantity, or on the margin). It costs you $10 per hour for someone to make hamburgers, all of the other costs are assumed away … The law of increasing opportunity cost says that: a. opportunity costs of production always tend to increase. the law of absolute advantage (E) Figure 1 Production possibilities curve B Food Clothing The law of increasing opportunity costs states that as production of a product increases, the cost to produce an additional unit of that product increases as well. Graph 3: Draw a production possibilities model and using your own numbers, explain the concept of the law of increasing opportunity cost. Marginal cost, is the cost a firm faces on the next unit produced (eg. The law of increasing opportunity cost says that as the output of one good increases, the opportunity cost in terms of other goods tends to increase. The law of increasing opportunity cost is a concept that is often employed in business and economic circles. Put two points, A and B, on the curve. 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