Production Possibilities Curve: Practice Questions (Microeconomics 1.3)

Answer: (A). Tablets fall from 51 thousand to 41 thousand, so 51 − 41 = 10 thousand tablets are given up.

• (B) reads the level of tablets at S instead of the change.
• (C) reads the level of tablets at R, the starting point, instead of the change.
• (D) names what is gained, not what is given up. An opportunity cost must be measured in the other good.

Answer: (C). Better technology in both industries means the same resources can produce more of both goods, so the whole curve moves out.

• (A) confuses using existing resources with gaining new ones: the point moves from inside towards the curve, but the curve stays put.
• (B) confuses a change in preferences with a change in productive ability: it is a movement along the curve.
• (D) is a reallocation of the same resources, which is a movement along the curve, not a shift.

Answer: (A). As Rosmar moves towards corn, it must use resources that are better at making tablets, so the opportunity cost of corn rises: 3, 6, 10, 15 and then 26 thousand tablets for each extra 5 thousand tonnes. Rising opportunity cost gives the bowed-out shape.

• (B) confuses the position of a curve with its shape. More resources would place the curve farther out, not change how it bends.
• (C) brings in prices and markets. The PPC is about physical production possibilities, not prices.
• (D) confuses inefficiency with shape. Unemployment puts the economy at a point inside the curve.

(a) One chair costs 300 ÷ 100 = 3 baskets of mangoes. One basket costs 100 ÷ 300 = 1/3 of a chair (about 0.33 chairs). These are constant along the whole line.

(b) The PPC is: baskets = 300 − 3 × chairs.

• X: at 40 chairs, maximum baskets = 300 − 120 = 180. 150 < 180, so X is inefficient (inside).
• Y: at 60 chairs, 300 − 180 = 120. Y is efficient (on the curve).
• Z: at 80 chairs, 300 − 240 = 60. 80 > 60, so Z is unattainable (outside).

(c) 10 more chairs × 3 baskets per chair = 30 baskets of mangoes. Check: at 70 chairs the line gives 300 − 210 = 90 baskets, and 120 − 90 = 30.

Suggested mark points (3): 1 for both opportunity costs with units; 1 for all three classifications with a supporting calculation; 1 for 30 baskets.

Common error: writing the opportunity cost of a chair as 1/3 basket (dividing the wrong way). Check: if 100 chairs cost 300 baskets, each chair must cost more than one basket.

(a) Horizontal axis: “Corn (thousand tonnes per year)”. Vertical axis: “Tablets (thousands per year)”. (The axes may be swapped if the labels and points match.) Plot P to U and join them with a smooth curve bowed outward from the origin, meeting the tablet axis at 60 and the corn axis at 25. Label it PPC₁. Plot R at (10, 51), on the curve.

(b) Draw PPC₂ meeting the corn axis at the same point (25) but the tablet axis lower than 60. The curve pivots inward on the tablet axis. Reason: the earthquake reduced the capital used to make tablets, so the most tablets Rosmar can make falls. If all resources go to corn, the factories were not being used anyway, so maximum corn is unchanged.

(c) No. R was on PPC₁, so it used all of Rosmar’s resources efficiently. After the earthquake there are fewer factories, so at 10 thousand tonnes of corn Rosmar can make fewer than 51 thousand tablets. PPC₂ lies inside PPC₁ everywhere except at the corn intercept, so R is now outside PPC₂: unattainable.

Do not award the second point for a parallel inward shift of the whole curve: the earthquake did not reduce Rosmar’s ability to grow corn.

(a) At 10 thousand tonnes of corn, Rosmar could make 51 thousand tablets (point R). It makes only 40 thousand, so it is inside the PPC: inefficient.

(b) 51 − 40 = 11 thousand tablets, with an opportunity cost of zero, since no corn is given up.

(c) The minister is wrong about the shift. Re-employing workers uses resources Rosmar already has, so the economy moves from inside the curve towards it (to R). The curve does not move. Output rises, which is welcome, but in this model economic growth means an outward shift of the curve itself, caused by more or better resources or technology.

(d) Any two: more workers (for example, population growth or immigration); more capital (new factories or machinery); better education and training (higher-quality labour); new technology in either or both industries; discovery of more usable land or raw materials.

(a) Each move adds 5 thousand tonnes of corn.

(b) Resources are specialised. For example, Rosmar’s first extra corn can be grown by moving farm-ready land and farm workers who were making few tablets, so few tablets are lost. Later, Rosmar must turn trained electronics engineers and clean-room factory sites into farming resources. They are very productive at tablets but poor at farming, so each extra tonne of corn costs many more tablets.

(c) A straight line fits when resources are equally suited to both goods, so moving them does not change their productivity. Example: a workshop whose workers, using the same tools, can make either wooden chairs or wooden tables in fixed times. Each table always costs the same number of chairs, so the opportunity cost is constant and the PPC is linear.

Accept answers to (a) given per 5 thousand tonnes (3, 6, 10, 15, 26 thousand tablets) if the unit is stated clearly.