The effect on PPF for Wheat and cloth if the supply of capital falls by 10% and the supply of labor increases by 10%. Concept Introduction: The resources in the economy are scarce for the individuals as well as the economy as a whole, so it becomes important to use these resources efficiently in the production of goods and services. Efficiency in use of resources is getting the most of the available resources. The production possibility frontier is different combinations of goods that can be produced with most efficient use of resources. This means that it is a combination of goods which are between inefficient goods and unattainable goods. The production possibilities frontier curve serves as a boundary between inefficient goods and unattainable goods. If there is a change in the resources that affects both the goods on the production possibilities frontier curve, it will shift parallel to the original curve. However, if the change in resources only affects one of the products, it will bring about a change or movement along the PPF curve.

Question

Suppose an economy uses two resouces (labor and capital) to produce two goods (wheat and cloth). Capital is relatively more useful in producing cloth, and labor is relatively more useful in producing wheat. If the supply of capital falls by 10 persent and the supply of labor increases by 10 percent, how will the PPF for wheat and cloth change?

Answer 1

Question

Chapter 2, Problem 3.6P

To determine

The effect on PPF for Wheat and cloth if the supply of capital falls by 10% and the supply of labor increases by 10%.

Concept Introduction:

The resources in the economy are scarce for the individuals as well as the economy as a whole, so it becomes important to use these resources efficiently in the production of goods and services. Efficiency in use of resources is getting the most of the available resources. The production possibility frontier is different combinations of goods that can be produced with most efficient use of resources. This means that it is a combination of goods which are between inefficient goods and unattainable goods. The production possibilities frontier curve serves as a boundary between inefficient goods and unattainable goods.

If there is a change in the resources that affects both the goods on the production possibilities frontier curve, it will shift parallel to the original curve. However, if the change in resources only affects one of the products, it will bring about a change or movement along the PPF curve.

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