Problems and Applications The production possibilities front

Problems and Applications

The production possibilities frontier has a bowed-out shape because the quantity of guns the economy must give up in order to produce more butter

decreases/increases the more butter is produced. In other words, the opportunity cost of butter falls/rises with increased production.

8. Problems and Applications Q2 Imagine a society that produces military goods and consumer goods, which we\'ll call \"guns\" and \"butter,\" respectively. The following graph shows the production possibilities frontier for guns and butter. Butter The production possibilities frontier has a bowed-out shape because the quantity of guns the economy must give up in order to produce more butter the more butter is produced. In other words, the opportunity cost of butter with increased production. Indicate which of the points are impossible for the economy to achieve and which are feasible but inefficient. Check all that apply. Characteristic Impossible for the economy to achieve Feasible but inefficient A B

Solution

The production possibilities frontier has a bowed-out shape because the quantity of guns the economy must give up in order to produce more butter increases the more butter is produced. In other words, the opportunity cost of butter rises with increased production.

The reason for the shape of the Production Possibilities Curve (PPC) is something called the law of increasing opportunity costs. Basically, what this means is that as an economy devotes more of its resources to one kind of product, it becomes less efficient. This is why the PPC is flatter at its end points and more curved in the middle.

Point D is impossible for economy to achieve, while point A is onw which is feasible but inefficient.

If it is necessary for you to mark for point B and C, then please go for option \'impossible for economy to achieve.\'