Plotting The PPC From Possible Data - SS2 Economics Past Questions and Answers - page 1
What does the production possibility curve represent?
The maximum amount of one good that an economy can produce
The maximum amount of two different goods that an economy can produce
The minimum amount of one good that an economy can produce
What do points inside the production possibility curve represent?
Efficient use of resources
Inefficient use of resources
Unattainable production levels
What is the slope of the production possibility curve?
The rate at which resources are being utilized
The rate at which the economy is growing
The rate at which one good must be sacrificed for an additional unit of the other good
Given the schedule below, draw the production Possibility Curve. Determine the slope of the curve and the opportunity cost of producing an additional unit of cars.
|
Production possibilities |
Cars |
Computers |
|
A |
0 |
15 |
|
B |
1 |
14 |
|
C |
2 |
12 |
|
D |
3 |
9 |
|
E |
4 |
5 |
|
F |
5 |
0 |
To draw the production possibility curve (PPC) from the table, we need to plot the points representing each combination of cars and computers and connect them with a line. The resulting curve would represent the maximum output of cars and computers that can be produced with the given resources and technology.
The slope of the PPC measures the opportunity cost of producing an additional unit of cars in terms of the units of computers that must be given up. The formula for calculating the slope is:
slope = (change in computers) / (change in cars)
For example, the slope between points A and B is:
slope_AB = (14 - 15) / (1 - 0) = -1
This means that to produce an additional car, the economy must give up one computer. Similarly, the slope between points B and C is:
slope_BC = (12 - 14) / (2 - 1) = -2
This means that to produce an additional car, the economy must give up two computers.
The opportunity cost of producing an additional unit of cars increases as we move along the PPC from left to right. This is because the resources used to produce cars are less suited for producing computers, and vice versa. In other words, the more cars we produce, the more we have to give up in terms of computers