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Redraw Figure 1, but this time identify a different set of points along the frontier. Starting at point F (500,000 lives saved, zero production of other goods), have each point you select show equal increments in the quantity of other goods produced. For example, point H should correspond to 200,000 units of other goods, point J to 400,000 units, point K to 600,000 units, and so on. Now observe what happens to the opportunity cost of 200,000 more units of other goods as you move leftward and upward along this PPF. Does the law of increasing opportunity cost apply to the production of all other goods? Explain briefly.FIGURE 1 Points along a production possibilities frontier show combinations of two goods here, lives saved and other goodsthat can be produced using available resources and technology. At point A, all resources are used to produce other goods, and no lives are saved. At point F, 500,000 lives are saved, but no other goods are produced. The concave, bowed-out shape of the frontier reflects the law of increasing opportunity cost.
The law of increasing opportunity cost causes the PPF to have a concave shape,becoming steeper as we move rightward and downward. To understand why, re-member (from high school math) that the slope of a line or curve is just the changealong the vertical axis divided by the change along the horizontal axis. Along thePPF, as we move rightward, the slope is the change in the quantity of other goodsdivided by the change in the number of lives saved. This is a negative number, be-cause a positive change in lives saved means a negative change in other goods. Theabsolute value of this slope is the opportunity cost of saving another life. Nowasweve seenthis opportunity cost increases as we move rightward. Therefore, theabsolute value of the PPFs slope must rise as well. The PPF gets steeper and steeper,giving us the concave shape we see in the Figure 1. Because most resourcesby their very natureare better suited to some pur-poses than to others. If the economy were operating at pointA, or example, wedbe using all of our resources to produce other goods, including resources that aremuch better suited for health care. A hospital might be used as a food cannery, asurgical laser might be used for light shows, and a skilled surgeon might be drivinga cab or trying desperately to make us laugh…

with his stand-up routine. As we begin to move rightward along the PPF, say from A to B, we shift resourcesout of other goods and into health care. But we wouldfirst shift those resourcesbestsuited to health careand least suited for the production of other things. For exam-ple, the first group of workers wed use to save lives would be those who already havetraining as doctors and nurses. A surgeonwho would probably not make the bestcomediancould now go back to surgery, which he does very well. Similarly, the firstbuildings we would put to use in the health care industry would be those that wereoriginally built as hospitals and medical offices, and werent really doing so well asmanufacturing plants, retail stores or movie studios. This is why, at first, the PPF is very flat: We get a large increase in lives saved for only a small decrease in other goods.



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