Opportunity Costs are Zero Inside the PPF    We noted before that outcomes under the PPF are the result of under utilized or unemployed resources.20 Consider a point like D where Housing output is 75 and food output is 60. This society is capable of producing both more housing and more Food. This can only mean that some productive capabilities are lying idle since more of both goods can be produced.

   This also means that at a point on the interior of the PPF, the opportunity cost of housing and food is zero. We can also finally say something about points preferred to a point like D. Without knowing anything more about this society than that housing and food are considered good things, we can say that all the points in the yellow shaded area will be preferred to D, for the simple reason that all these points have at least as much or more of both housing and food. Since nothing is given up, and more is obtained, these must be preferred points. Point B is one such point where the society can produce 100 units of housing and 80 units of food.

20 Some resources are non-renewable, and the use of some resources cause pollution and other problems. For the purposes of our study of Production Possibilities we are supposing that all resources are renewable and non-polluting.

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