Question

1.1 With the aid of a full y labelled diagram, draw a Production Possibility Frontier for an economy producing maize and fish. Use the diagram to explain the concepts of choice, scarcity and opportunity costs
1.2 With the aid of a separate diagram explain what would happen if the African armyworm destroyed the maize production in the economy of 1.1 ceteris paribus
1.3 With reference to the diagram in 1.1, distinguish between 'efficiency' and' inefficiency'

Answer 1

A production possibility frontier shows all the possible production points of goods and services when all the available resources are utilized efficiently give the technology. So, if there are two goods “Fish” and “Maize”, then a possible PPF is given below.

Now, on the PPF points “A”, “B” and “C” are achievable. Now, as we move from “A” to “B”, => the production of “Maize” increases and “Fish” decrease this because resources are limited and the technology are given, => once we increase the production of one good, => we have to decrease the production of other good, => this measure the opportunity cost. So, here the PPF is concave, => the opportunity cost is increasing. This is because all the resources are not equally suitable for the production of different goods, => few resources are suitable for few particular goods.

Now, the point “X” is totally outside of the PPF, => this production point is unachievable given the available resources are the technology reflect the scarcity of resources.

Now, all the production points on the PPF is achievable, => we have to choose the best production point that will maximize the utility of the economy as whole, represent the choice.

2).

So, if the African armyworm destroyed the maize production, => the production of “maize” decreases for each and every unit of “fish” production, => the PPF will rotate left side with the same vertical intercept.

So, here the initial PPF was “A1B1” and the new PPF is “A1B2”.

3).

Consider the fig of “part A”. So, here in all production points on the PPF the resources are used efficiently, => points “A”, “B” and “C” are efficient production points. Now, when the resources are not used efficiently, => inefficient production point like “D”.