Opportunity cost is when the individual has to sacrifice the second best choice to
choose the alternative, which is the best option. In the graph present production
possibility curve, the line show that for each quantity of butter produce, it can
also produce a number of guns and vice versa, inside of the boundary line will be
inefficiency as they are not maximizing their input, and outside will be impossible
because they don’t have enough resource.
The government is facing an increasing opportunity cost, because as the curve is
sloping down or up, for example from point D to point C. they now have to
sacrifice more and more guns for each quantity of butter, so they are facing
increasing opportunity cost. This can affect the government badly, because for
example as they want to produce more and more butter, they will have to
sacrifice a larger proportion of guns output and vice versa. This could greatly
reduce the output to the society and perhaps lead to shortage of supply.
The consumer will then have to pay a higher
amount for the product from P to P1, which will reduce the consumer real
income.
In conclusion, the government can face an increasing cost in their decisionmaking. However, this is an assumption that the government is producing only
two products, in reality there are many more factor to consider in. Also even if
the government is producing two product, there is a possibility that the
relationship between the two products is inversely proportion and the gradient is
a straight line, not a parabola. Which means that the opportunity cost will be
constant, not increasing.