Answered: 400 A 300 Cars (millions per year) 200…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Related questions

Question

For the economy shown in the below exhibit, which of the following must be true when the economy is at point A?

Select one:

a. Not enough grain is being produced.

b. If the economy reallocates resources from A to D, it will have to sacrifice some car production.

c. Increased grain production would be impossible.

d. Consumers prefer D to A.

C
400
A
300
Cars
(millions
B
per year)
200
100
100 200 300 400
Grain
(millions of tons per year)

Expert Solution

Step 1

Production possibility frontier

Production possibility frontier (PPF) is the curve which shows all the possible combinations of two good which an economy can actually produce with its given resources and technology.

For example an economy has limited resources and it has to produce tanks and wheat but due to lack of resources that economy has a tradeoff between the productions of two goods. PPF shows this problem of tradeoff and shows all the possible combinations of tanks and wheat so that the economy can decide the production level and can achieve maximum efficiency and potential.

This curve is concave to the origin touching both axis and inside the curve it shows underutilization of resources as economy is not using its resources completely while outside or right to this curve shows unattainable points.