Question

In your response to the following essay question, you should provide a text of at least 10 lines (but preferably more).

• Please summarize, analyze, and comment on a particular aspect of an economic theory that you have learned in this class so far (i.e.: supply, demand, PPF, oportunity cost,...)
• In order to provide a high-quality response, you should integrate into your response some economic knowledge acquired in this class, analyze it, and relate a real world or practical application of that economic theory in your life, in the business world, or as it relates to the economy of our country.
• You should also provide some recommendations as to how you believe that we could apply that economic theory to improve upon the economic outcome achieved.

it can be about Supply, Demand or PPF

Answer 1

Production Possibility Frontier: -

A production possibility frontier, describes the various attainable combinations of 2 goods which a country can produce over a period of time. These goods could be anything however, by increasing the production of one good, the production of the second would reduce. This is because resources are limited which a country has and they can only be used in a way that maximizes our interests. Any point beyond the Production Possibility Frontier or curve, is one which cannot be attained with the current technology and resources which the country has and any outcome bellow the curve suggests an inefficient outcome for the country.

We can explain the same graphically as follows: -

Here we see two different goods i.e. rice and wheat being produced by a country. Along the Production Possibility Curve, different combinations are represented which the country can efficiently produce. These are points A, B, C, D

Outside of the Production Possibility Frontier is point D which is unattainable for the country and below the curve is an inefficient point which the country should avoid.

Recommendation: -

The recommendation in this case would be that the firm produces at a level which is on the production possibility curve, and gradually increases its resources and technological development to produce more goods and services over a period of time.

It should avoid producing at a level less than optimum as it brings in inefficiency in the economy.

Please feel free to ask your doubts in the comments section.