The principle of comparative advantage states that specialization increases productivity, but the principle of increasing opportunity costs states that, when you increase production of a single good, you must use increasingly costly resources. These two principles:
A) are evidence that economic theory is internally inconsistent.
B) are an example of the difference between abstract models and the real world.
C) cannot be true at the same time.
D) together account for the outward bow shape of production possibility curves.

Question

Quizplus · Accepted Answer

The principle of comparative advantage leads to specialization and increased productivity, which results in a shift outward of the production possibility curve. However, the principle of increasing opportunity costs indicates that as more resources are allocated to the production of a single good, the opportunity cost of producing additional units of that good increases. This results in a curved production possibility curve, with an outward bow shape. Therefore, these two principles are not contradictory but instead work together to explain the shape of a production possibility curve.

The Principle of Comparative Advantage States That Specialization Increases Productivity