Question

Lesson 2: Written Assignment

1. Suppose that a nation’s production possibilities are as follows:

Possibility	Food (millions of tons per year)	Tractors (millions per year)
A	0	30
B	4	28
C	8	24
D	12	20
E	16	14
F	20	8
G	24	0

1. Is it possible for this nation to produce thirty million tons of food per year? Why or why not.
2. Is it possible for this nation to produce thirty million tractors per year? Why or why not.
3. Suppose this society produces twenty million tons of food and six million tractors per year. Is it operating on its production possibilities frontier?
4. What factors might cause this nation to produce at a point within its production possibility frontier?
5. Moving from point A on the frontier to point B, how much food is gained? How many tractors are lost? What is the opportunity cost per ton of food gained?
6. Moving from point F on the frontier to point G, how much food is gained? How many tractors are lost? What is the opportunity cost per ton of food gained?
7. How do your answers to parts e and f compare? What general principle do your answers reflect?

2. Plot the production possibilities frontier in Question 1 on a graph. Measure food along the horizontal axis and tractors along the vertical axis. Answer the following questions.
   1. At what point along the horizontal axis does the PPF curve cut the axis?
   2. At what point along the vertical axis does the PPF curve cut the axis?

3. Suppose that because of technological advances, the nation in Question 1 can now produce twice as many tractors at each level of food production.
   1. Plot the new production possibilities frontier.
   2. After the technological breakthroughs, is the nation on its production possibilities frontier if it produces twenty million tons of food and sixteen million tractors?
   3. At what point does the new production possibilities frontier cross the horizontal axis? The vertical axis?
   4. After the technological advances, must the nation wind up producing more tractors than before? (Hint: Be careful. Recall that the PPF presents a menu of possible production points…)

4. For 50 years, Cuba has had a centrally planned economy in which the government makes the big decisions on how resources will be allocated.
   1. Why would you expect Cuba's production possibilities (per person) to be smaller than those of the United States?
   2. What are the social institutions that Cuba might lack that help the United States to achieve allocation efficiency?

5. If Sam is producing at a point on his production possibilities frontier, then he
   1. cannot produce any more of either good.
   2. can produce more of one good only by producing less of the other.
   3. will be unable to gain from trade.
   4. is not subject to scarcity.

6. Technological progress makes the production possibilities frontier
   1. shift inward toward the origin.
   2. become more linear and less bowed.
   3. shift outward from the origin.
   4. become less linear and more bowed.

7. The nation’s production possibilities frontier is bowed outward. Suppose that the government decides to increase the production of armaments by $200 billion, and that as a result the output of consumer goods falls by $200 billion. If a further $200 billion increase beyond the initial $200 billion increase in armaments output is sought, we can expect that the output of consumer goods and services will fall further by
   1. less than $200 billion.
   2. $200 billion.
   3. more than $200 billion.
   4. There is not enough information to determine the answer.

Answer 1

note first 5 quesitons have been solved.

a)

no it is not possible because food production is last for 24 million of ton and there is not combination that will shows production of 30 million ton of food.

b)

yes it is possible if we do not produce any quantity of food then we can shift our resources to tractor production and can produce upto 30 million of tractors.

c)

no it is not operating on the ppc but operating little below it as at point of F we can produce 20 million of foods but we can produce 8 million tons of tractor instead of 6 million ton.

d)

1, technogical obsolescence

2. less effcient resources

3. less resources for production then required "scarcity of resources"

E)

gain of food is 4 million ton

lost of tractor is 2 million ton

opportunity cost= loss of output / gain of output= 2/4

0.5 million ton of tractors

f)

gain of food = 4 million of ton

loss of tractors = 8 million of ton

opportunity cost= loss of output / gain of output= 8/4

2 million ton of tractors

G)

we will follow the formula of opportunity cost calculation and and we find that PPC is concave its origin and find that marginal rate of transformation is increasing

as we move from A to B and from F to G. opportunity cost of production is that where production of one product is increased by lowering the other one as we have lack of resources to produces.