Question

The minister of Agriculture claims: “during the last years we improved our technology of Agriculture production while the industry’s technology experienced no change”. The statistics evidence shows that the agriculture production was fixed during these years while the productivity of the industry has grown. Explain this result using the PPF model.

Answer 1

We donote Production in agriculture on X axis and Industrial Production on Y axis. Let or initial PPF be PP1. Any point on PP1 denotes the agri and industrial production at maximum efficieny . Suppose the economy is at Pt A where agri prod is a1 and industrial prod is at i1. As per the minister's claims we improved our technology of Agriculture production while the industry’s technology experienced no change. Hence PP1 rotates about PtY to PP2. Now as per the statistical evidence the agriculture production was fixed during these years while the productivity of the industry has grown. This claim is justifiable at a point say B which is above PP1 but below PP2.

Point B is attainable . At this point we have higher industrial production. Since B is above PP1 it denotes greater productivity in industrial sector. PP2 implies that for a unit increse in agri prod lesser units of industrial prod will have to be sacrificed or vice versa.

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