Production Possibilities Curve
After reading the chapters from the background materials page, please address the following questions in an essay form:
- Define the production possibilities curve in your own words.
- Could a nation's production possibilities curve ever shift inward? What are TWO factors that may cause this to occur?
- How can an economy achieve points that are outside the production possibilities curve?
Use the following graph to address questions 4 and 5 below. Consider a production possibilities curve (PPC) for an economy that produces farm goods and factory goods. It can produce the combinations listed in the table. Notice if the economy produces more farm goods, it will give up factory goods resources.
|
Point on PPC
|
Farm goods
|
Factory goods
|
|
b
|
10
|
700
|
|
c
|
20
|
650
|
|
e
|
60
|
400
|
|
f
|
70
|
120
|
- If the economy wanted to move from point b to c, what would be the opportunity cost of increasing farm production by 10 tons? Your answer should be in terms of factory goods.
- Compare the movement from b to c and from e to f. What do you notice about opportunity cost? Explain.