Increasing opportunity cost means that producing each additional unit of one good requires sacrificing progressively more of another good, creating a bowed-out production possibilities curve (PPC). Constant opportunity cost means the sacrifice remains unchanged, creating a straight-line PPC.
This is part of IB Economics subtopic 1.1 What is economics? and applies to both SL and HL.
Opportunity cost is the value of the next best alternative forgone when a choice is made. On a PPC, it can be measured as the amount of one good sacrificed to produce an additional unit of the other good.
| Feature | Increasing opportunity cost | Constant opportunity cost |
|---|---|---|
| PPC shape | Bowed outward from the origin | Straight line |
| Slope | Becomes progressively steeper as production moves along the curve | Remains unchanged |
| Resource assumption | Resources are specialized and not equally suitable for producing both goods | Resources are equally adaptable between both goods |
| Example | Additional computers cost first 2, then 4, then 6 tonnes of wheat | Every additional computer always costs 3 tonnes of wheat |
Increasing opportunity cost occurs because factors of production have different abilities. When an economy initially increases computer production, it transfers resources well suited to making computers. As specialization continues, it must transfer resources that are increasingly better suited to wheat production, so progressively more wheat is forgone.
With constant opportunity cost, resources are assumed to be equally productive in both uses. The PPC therefore has a constant slope: every additional unit of one good has the same opportunity cost.
A common misconception is that increasing opportunity cost causes the PPC to shift. It does not. A movement along the existing PPC shows a change in the economy's chosen combination of goods; a shift of the entire PPC represents a change in productive capacity.
Exam technique: For an “explain” question, define opportunity cost, identify the PPC's shape, and connect that shape to resource specialization. Label both axes with the two goods and use numerical sacrifices to demonstrate whether opportunity cost rises or remains constant.
