Light

Increasing Opportunity Cost

Definition

Increasing opportunity cost refers to the concept that as more of a particular good is produced, the opportunity cost of producing additional units of that good increases. This occurs because resources are not equally suited for producing all goods.

Analogy

Imagine you have a limited amount of time and money to spend on activities during the weekend. At first, you decide to go to a movie with your friends, which has a low opportunity cost since it doesn't require much time or money. However, if you decide to go to multiple movies in one day, the opportunity cost increases because you have less time and money available for other activities like going out for dinner or playing sports.

Related terms

Constant Opportunity Cost: Constant opportunity cost refers to a situation where the opportunity cost remains the same regardless of how much of a particular good is produced. It means resources are equally suited for producing different goods.

Law of Increasing Opportunity Cost: The law of increasing opportunity cost states that as production shifts from one good to another, more and more resources that are better suited for producing the initial good must be used, resulting in increasing opportunity costs.

Production Possibilities Curve (PPC): The PPC represents all possible combinations of two goods that can be produced given current resources and technology. It illustrates the concept of scarcity and trade-offs by showing different levels of production efficiency.