Question

What does the slope of PPF indicates ?

• A. The opportunity cost of one goods in terms of other one
• B. The ratio of their market price
• C. Ratio of their cost of production
• D. The rate of their growth

Answer 1

Answer: (A)

The opportunity cost of one goods in terms of other one

• The slope of PPF indicates the relative marginal cost of two goods that is the opportunity cost of one good in terms of another.
• PPF shows all the maximum possible combination of two goods, which can be produced with the given level of resources and technology.
• In such a case, more of one good can be produced by taking resources away from the production of another good.
• Thus the slope indicates the inverse relationship between the change in quantity one commodity to the change of quantity of another commodity.