works and aids in decision making by demonstrating what opportunities exist and what is required to take advantage of those opportunities. But having more of one means having less of another. This is referred to as opportunity cost. Opportunity cost is measured by evaluating the PPF. How much cloth has to be given up to get more rice and vice versa are the questions requiring answers using the rice and cloth model. If all allotted monthly working hours are used to grow rice, there are twenty pounds of rice but no cloth. How much rice is given up to produce one yard of cloth? Figure 1 shows that a single yard of cloth will cost two pounds of rice to produce. If an additional yard of cloth is produced, the progression from point B to point C indicates that it will cost three pounds of rice to produce the second yard of cloth. The next yard of cloth costs six pounds of corn. It has been learned from the model that the opportunity cost of cloth increases as more cloth is produced. This is also true in reverse. The first six pounds of rice costs one yard of cloth to produce. The next five pounds of rice costs an additional yard of cloth, and so on. The opportunity cost of rice also increases. Contributing to this phenomenon is the factor of inequality; not all scarce resources are equally useful in all activities. For example, while some of the land on Joe’s hypothetical island is extremely suitable for high yield rice crops, the remaining landscape may be rocky and barren. The sheep on the island, however, prefer rocky and barren land. Obviously, the optimum use of this island resource is to use the most fertile, wet land to grow rice and the most rocky and barren land to raise sheep. Only if a larger rice yield is desired will it be necessary to attempt to cultivate the less desirable land. If all allocated time is devoted to cultivating rice then it becomes necessary to use unsuitable low yielding land. Devoting some of the time to ...
