Refer to the Page 20 following production possibilities table for consumer goods
ID: 1165886 • Letter: R
Question
Refer to the Page 20 following production possibilities table for consumer goods (automobiles) and capital goods (forklifts): LO1.6
Show these data graphically. Upon what specific assumptions is this production possibilities curve based?
If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length?
If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources?
Is production at a point outside the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities curve?
Production Alternatives Type of Production A B C D E Automobiles ?0 ?2 ?4 ?6 8 Forklifts 30 27 21 12 0Explanation / Answer
Given the data in the table, the production possibility frontier is based on the assumption of limited resources and perfect labour mobility in the economy - meaning that the production of one commodity can be increased by moving resources from the other commodity.
If the economy is initially at point C, cost of one more automobile = d(Forklifts)/d(automobiles) = 9/2 = 4.5 forklifts
Cost of one more forklift = d(automobiles)/d(forklifts) = 2/9 automobiles
the shape of the peroduction possibility fronteir depicts the law of increasing opportunity cost.
If given the production posibility table, the economy were producing 3 automobiles and 20 forklifts, then the economy were not using its available resources to the optimum. This is because it could increase the production of both forklifts and automobiles and reach point C without any additional cost. Thus, it was operating at a point under the production possibility curve.
No, production outside the PPF is currently not possible. This is because the economy cannot produce more of any oen commodity without a fall in the other.
However, with advancements in technology in the future, production beyond the current point will be possible.
International trade allows a country to consume beyond its current production possibilities via specialization. As countries specialize in the production of that commodity in which it has a comparative advantage, it can employ all its resources for the production of one commodity and then trade to consume other commodities as well.