Chapter 2 PPF Worksheet PDF

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Hill, Ashley ECON 201 MW 9:30 P R O D U C T I O N P O S S I B I L I T I E S F RO N T I E R Chapter 2 Imagine a very simple society where there are only two goods of value -- guns and butter. Economists have carefully studied this society and determined that with existing technology (knowledge), one man can produce two butter or one gun per day. There are five men in this society. 1. Construct a table showing the maximum possible output combination of guns and butter for this society. Graph this relationship. Butter 0 2 4 6 8 10

Guns 5 4 3 2 1 0

Point A B C D E F

G

U N S

10 9 8 7 6 5 4 3 2 1 0

0 1 2 3 4 5 6 7 8 9 BUTTER 10 11 12

This line is the Production Possibilities Frontier (PPF). It shows society's maximum potential output. It assumes: (1) fixed resources (2) fixed technology and (3) maximum production efficiency. 2. A. Graph the point 2 GUNS and 4 BUTTER and label it H. B. Graph the point 3 GUNS and 6 BUTTER and label it G. Explain these two points Label G is in the unattainable region of the PPF line, while the point H is in the attainable region of the PPF line or product inefficient not optimal. 3. Calculate the slope of the PPF. (See Appendix A in the text book if necessary.) Point B(2,4) Point C(4,3) 2-4/4-3=-1/2= slope of -1/2 4. A. If society moves from point B to point C, what happens to output? The output of butter goes up 2 as the output of guns goes down 1. B. What happens to resources? Ther Any point of the frontier involves efficiency. Nothing happens to resources but re allocated resources. From gun to butter C. What is the cost of the additional output?(Only the cost) give up 1 gun 5. If society moves from point H to point D what is the cost of the additional output? There was a gain in butter but not in the amount of guns. It went from bring productive inefficient to productive efficiency. No cost (Rare circumstance) 6. Which of the original points -- A through F -- is the best one? You don’t know because not knowing the demand/ wants and needs of society 8/28/2021

PPF Worksheet

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7. Suppose that technology remains the same but that there is an increase in the labor force from 5 to 6 men. Graph the new PPF on the same graph used above. Butter Guns point 0 6 A 2 5 B 4 4 C PPF2 6 3 D 8 2 C 10 1 e 8. Suppose that the labor force stays at 5 men but the 12 0 F technology improves permitting each man to produce two guns or two butter in one day. Graph the new PPF. Butter Guns Point 0 10 A PPF3 2 8 B 4 6 C 6 4 D 8 2 E 10 0 F

9. Under what circumstances would it be possible to get to point G? increase in resources/ or increase in technology= sustained economic growth Shift to right 10. What does it mean if a PPF is bowed out? What could cause this? A bowed line is an increase in ouptput costs as more is produced.It can happen when the opprotuniy cost increases as products can produce.increasing cost are not efficient 11. What is the best point on the original PPF if one gun is valued the same as one butter? Prefer the cheaper goods and more. 2 butter or 1 gun. More butter and fewer guns. Point F...