Scarcity of resources necessitates trade-offs, and trade-offs result in an opportunity costs. Any decision that involves a choice between two or more options has an opportunity cost.
The concept of ‘opportunity costs’ can be shown by using a Production Possibility Curve. The Production Possibility Curve depicts the best possible combinations of two or more goods an economy can produce using all of the available resources. It shows the trade-off between more of one good in terms of another. The law of increasing opportunity costs is reflected in the shape of the Production Possibility Curve. The curve is bowed out, which shows that when an economy wants to produce more of one product it must give up successively larger amounts of the other products it makes. The slope of the curve conveys the trade-off in terms of opportunity cost of producing one good rather than another.
Resources are not all the same. For example, if an economy was producing say motor vehicles and nuts, some of its resources will be better suited for producing motor vehicles while others are better suited for gathering nuts. Some people (resources) will be really good at gathering nuts, for example people who love to be outdoors instead of indoors, while others like to work inside on cars. In large economies if we started to withdraw resources from one product for another product, eventually we would reassign those whose opportunity costs are highest, which shows the general principle that when resources have different costs, we should always exploit the resource with the lowest opportunity cost first. This is called the ‘low hanging fruit principle’ which says when expanding the production of any good, first employ those resources with the lowest opportunity cost, and only afterward turn to resources with higher opportunity costs.
Because resources are not equally productive in all possible uses, shifting resources from one use to another brings the law of increasing opportunity costs into play. The production of additional units of one product requires the sacrifice of increasing amounts of the other products so a society should first employ those resources that are relatively efficient at producing that good, only afterward turning to those that are less efficient.