A community for students.

Here's the question you clicked on:

55 members online
  • 0 replying
  • 0 viewing


  • 4 years ago

Can someone explain how the slope on a PPF shows opportunity cost?

  • This Question is Closed
  1. anonymous
    • 4 years ago
    Best Response
    You've already chosen the best response.
    Medals 0

    |dw:1347597380071:dw| if the slope is, say, \[\frac{ -7bread }{ 6 milk }\], how is that an opportunity cost? and what is it an opportunity cost of?

  2. anonymous
    • 4 years ago
    Best Response
    You've already chosen the best response.
    Medals 0

    |dw:1347674814325:dw|The slope of the line of y = mx + b determines the opportunity cost or trade off. In other words, slope (as denoted by m) is called opportunity cost by economists in this simple case. For now, let x = milk and y = bread. If we were to start at the top left on the y axis, then y = 10 and x = 0 (I've chosen an arbitrary number). Let's also assume the slope (opportunity cost) m = 2. This means that for every unit of y that we give up, we gain 2 units of good x. This is an opportunity cost of 1:2 because we are giving up 2 bread loaves to gain 1 milk carton. To get 2 milk cartons we need to give up 4 bread loaves. The opportunity cost involved here is the fact that we have to "forfeit" our current holding of bread in order to gain a non zero amount of milk. Think of it as two countries - our country has to trade some bread for some milk and in essence our people will have 8 bread loaves left and have 1 milk carton. We lost 2 bread loaves to gain 1 milk carton. If we assume that both a bread and a milk carton have the same value (or utility in economic speak) to our citizens, then we have essentially lost. However, if each unit of bread still has a value of 1, but now instead each milk has a value of 3, then after we have traded, our net or total value (utility) of the 8 bread loaves and 1 milk cartons will be 11 "utility". Remember, that before trading we had only 10 bread loaves and 0 milk cartons for a combined utility of 10.

  3. Not the answer you are looking for?
    Search for more explanations.

    • Attachments:

Ask your own question

Sign Up
Find more explanations on OpenStudy
Privacy Policy

Your question is ready. Sign up for free to start getting answers.

spraguer (Moderator)
5 → View Detailed Profile

is replying to Can someone tell me what button the professor is hitting...


  • Teamwork 19 Teammate
  • Problem Solving 19 Hero
  • You have blocked this person.
  • ✔ You're a fan Checking fan status...

Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.

This is the testimonial you wrote.
You haven't written a testimonial for Owlfred.