An economy can produce a maximum of either 28 million tons of wheat or 7,000 automobiles,
or various intermediate quantities, as depicted in the table below:

Wheat (millions of tons)
A28 ,B 7,C25,D 22,E 18,F 13,G 7,H 0
Automobiles (thousands of units)
A0,B1,C 2,D 3,E 4,F 5,G 6,H 7
a. Plot the data from the table on a graph, with wheat on the vertical axis and
automobiles on the horizontal axis.
b. Can this economy simultaneously produce 3,000 automobiles and 15 million tons of
wheat? Explain. Where would this point lie relative to the PPF?
c. Can this economy simultaneously produce 2,000 automobiles and 27 million tons of
wheat? Explain. Where would this point lie relative to the PPF?
d. Add a new row to the table listing the opportunity cost of producing the 1st through
the 7th automobiles. In what units is this opportunity cost measured?
e. What is the relationship between the opportunity costs you just calculated and the
slopes of the PPF graph?
f. Now consider if instead the economy decided to produce additional units of wheat and
fewer automobiles. In particular, consider if the economy moved from D to C. What is
the relationship between the opportunity cost of this move and the slope of the graph
connecting points C and D?
g. Can you explain why the opportunity cost of moving from point C to D is not the same
as the opportunity cost of moving from B to C? In particular, why is the opportunity
cost of moving from C to D higher than the opportunity cost of moving from B to C?
h. An alternative shape used to draw PPFs is simply a straight line. What underlying
assumption is reflected in a straightline PPF?

Posted Date: 11/8/2012 10:33:22 PM | Location : United States

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