The curvature of the production possibilities frontier shows that as additional resources are added to education, moving from left to right along the horizontal axis, the original gains are fairly large, but gradually diminish. Now consider the other end, at the lower right, of the production possibilities frontier. Choices outside the PPF are unattainable and choices inside the PPF are wasteful. Combinations of output that are inside the production possibilities … Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. Information, Risk, and Insurance, Introduction to Information, Risk, and Insurance, 16.1 The Problem of Imperfect Information and Asymmetric Information, 17.1 How Businesses Raise Financial Capital, 17.2 How Households Supply Financial Capital, 18.1 Voter Participation and Costs of Elections, 18.3 Flaws in the Democratic System of Government, Chapter 19. An additional reason for the lack of numbers is that there is no single way to measure levels of education and healthcare. In contrast, the PPF has a curved shape because of the law of the diminishing returns. During the Second World War, Germany’s factories were decimated. The PPF is called a frontier or a boundary line because any point on the curve represents full employment of resources. The straight downward-sloping line is the production possibility frontier. An inefficient organization operates with long delays and high costs, while an efficient organization meets schedules, is focused, and performs within budget. Just as with Alphonso’s budget constraint, the opportunity cost is shown by the slope of the production possibilities frontier. Why is a production possibilities frontier typically drawn as a curve, rather than a straight line? Sort by: Top Voted. The PPF is the collection of all output combinations possible, that are efficient. 12450 views This situation is illustrated by the production possibilities frontier in Figure 1. Allocative efficiency? Answer link. Countries tend to have different opportunity costs of producing a specific good, either because of different climates, geography, technology or skills. The opportunity cost would be the healthcare society has to give up. The lesson is not that society is likely to make an extreme choice like devoting no resources to education at point A or no resources to health at point F. Instead, the lesson is that the gains from committing additional marginal resources to education depend on how much is already being spent. This problem has been solved! When you think of improvements in healthcare, you can think of longer life expectancies, lower levels of infant mortality, and fewer outbreaks of disease. Increasing opportunity cost of specializing in production. How does a production possibility curve illustrates the trade off of supply and demand? Production possibilities curve concave to the origin. Production Possibilities Frontier Graph Sometimes, the production possibility frontier does not look like a curve—instead, it’s linear, meaning that it’s simply a straight line. Why is allocative inefficiency also wasteful? 31. [3] the goods must make use of inputs in similar proportions. Draw Farmer Brown's production possibilities frontier (PPF), corn on horizontal axis and tobacco on vertical … 1.1 What Is Economics, and Why Is It Important? Imagine that society starts at choice D, which is devoting nearly all resources to education and very few to healthcare, and moves to point F, which is devoting all spending to education and none to healthcare. When countries engage in trade, they specialize in the production of the goods that they have comparative advantage in, and trade part of that production for goods they do not have comparative advantage in. Inside the PPF curve is inefficient or involves unemployed workers. But it would not have any resources to produce education. Its always drawn as a curve and not a straight line because there a cost involved in making a choice i.e when the quantity of one good produced is higher and the quantity of the other is low. On the other hand, if a large number of resources are already committed to education, then committing additional resources will bring relatively smaller gains. Both show a tradeoff between having more of one good but less of the other. However, any choice inside the production possibilities frontier is productively inefficient and wasteful because it is possible to produce more of one good, the other good, or some combination of both goods. For example, production could take place at point D, with 9 million units of food and 3 million units of cloth being produced. If it were to allocate all of its resources to education, it could produce at point F. Alternatively, the society could choose to produce any combination of healthcare and education shown on the production possibilities frontier. A movement along the curve represents a transfer of labor resources out of one industry and into another such that all labor remains employed. Production cannot take place beyond the curve. The straight-line production possibilities curve introduced in the text But it does not have enough resources to produce outside the PPF. But improvements in productive efficiency take time to discover and implement, and economic growth happens only gradually. There are no specific numbers because we do not know the exact amount of resources this imaginary economy has, nor do we know how many resources it takes to produce healthcare and how many resources it takes to produce education. C) the two products are equally important to consumers. By moving from point A to point B Brazil would give up a relatively small quantity in wheat production to obtain a large production in sugar cane. Comparative advantage and the terms of trade . Government Budgets and Fiscal Policy, Introduction to Government Budgets and Fiscal Policy, 30.3 Federal Deficits and the National Debt, 30.4 Using Fiscal Policy to Fight Recession, Unemployment, and Inflation, 30.6 Practical Problems with Discretionary Fiscal Policy, Chapter 31. Answer: (a) Concave to the origin. If Brazil devoted all of its resources to producing wheat, it would be producing at point A. Neither skis nor snowboards is an independent or a dependent variable in the production possibilities model; we can assign either one to … This is known as opportunity cost. People are having cosmetic surgery on every part of their bodies, but no high school or college education exists. 16) Explain why societies cannot make a choice above their production possibilities frontier and should not make a choice below it The production possibility frontier (PPF) is used to illustrate the different combination of two good or services produced with all the resources available. Answer. In the context of a PPF, opportunity cost is directly related to the shape of the curve (see below). Question: A Production Possibilities Curve That Is A Straight Line … If the production possibilities curve is a straight line then the A opportunity | Course Hero. b. Monetary Policy and Bank Regulation, Introduction to Monetary Policy and Bank Regulation, 28.1 The Federal Reserve Banking System and Central Banks, 28.3 How a Central Bank Executes Monetary Policy, 28.4 Monetary Policy and Economic Outcomes, Chapter 29. Productive efficiency means that, given the available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good. In our example, Brazil has a comparative advantage in sugar cane and the U.S. has a comparative advantage in wheat. But, opportunity cost usually will vary depending on the start and end points. 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