Question

Suppose we live in a country that produces two goods.The first good is a composite of everything people need and want (e.g.,water, food, shelter, clothing, technology, transportation, education,news, entertainment, public safety, and other services). The second good is healthcare and every thing related to it. Use the PPF tool and the concept of technical and allocative efficiency to determineand discuss where this country stands in the production of health- related goods and services.Use some real- world data (e.g., gross domestic product by sector) to substantiate your answer.

Answer 1

The given economy is producing two goods and one of them is healthcare while the other is a composite one which includes a lot of other goods such as water, food, shelter, clothing, technology, transportation, education,news, entertainment, public safety, and other services. Now this implies that the economy that has limited resources to carry out production of all the goods, will now be devoting a major proprtion of resources in other goods and a very insignificant proprortion on health care.

Allocative efficiency is achieved when the last unit produced ensures marginal benefit equals marginal cost. Productive efficiency ensures production is done at the lowest possible cost. All points on the PPF show productive efficiency and allocative efficiency. Here also we can assume that the nation, if operates at PPF, will have too little healthcare and too much of other composite goods. A real world example is that of fastest developing economies who pay more attention on infrastructure, education, sanitation, health, and others. So when we compare one single sector against all others, the % of GDP devoted in health turns out to be the least.