(i) Why is PP curve downward sloping from left to right?    (D 2006C)

(ii) Why does PP curve look concave to the origin? 

(i) PP curve slopes down. Why? PP curve slopes down from left to right because in presence of scarcity of resources more of one good can be produced only if resources are withdrawn from production of other good. In other words production of one good can be increased only after sacrificing some quantity of other good. For example in the marginal opportunity cost schedule given in Q. 1.12 we find in combination B that 1 lakh ton of wheat is produced by sacrificing production of 1 (= 15 - 14) thousand tanks and in combination C, the same amount of wheat is produced by sacrificing 2 (= 14 - 12) thousand tanks. In other words as production of one good (here wheat) increases that of other good (here tanks) falls. It is so because resources are fixed (limited) and production of both the goods can't be increased. As a result PP curve slopes down from left to the right as shown in Fig. 1.1 and Fig. 1.2.

(ii) Concave shape of PP curve. PP curve looks concave to the origin because of increasing marginal opportunity cost (or MRT). Increasing marginal cost implies that for producing an additional unit of a good, sacrifice of units of other good (i.e., opportunity cost) goes on increasing. MRT increases because it is assumed that no resource is equally efficient in production of all goods. So it becomes difficult to substitute resources specialised in production of one good (say tanks) to production of other good (say wheat). For instance in Production Possibility Cost Schedule given in Q. 1.12, we find for each increase of 1 lakh ton of wheat, sacrifice of tanks has been increasing successively from 1 thousand to 2 thousand; therefrom 2 to 3 thousand tanks and so on. This raises cost (marginal opportunity cost) which is technically called marginal rate of transformation (MRT). As a result of increasing MRT, shape of PP curve becomes concave to the origin.

In short PP curve becomes concave because marginal rate of transformation (marginal opportunity cost) rises as resources are diverted from production of one good to one other.

Note, (i) PP curve will be a straight line if sacrifice of units of other good is constant, i.e., if Marginal Opportunity Cost/MRT is constant, (ii) PP Curve will become convex if sacrifice of units of other good goes on decreasing.