Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two.
A. Which point(s) on the graph is (are) efficient production possibilities?
B. Which point(s) on the graph show unemployment of resources?
C. What is the opportunity cost of moving from point R to point Q?
D. What is the opportunity cost of moving from point T to point R?
Answer:
a) Combination Q, R, U and V
PPF shows different combination of two goods which an economy can produce with its available resources. Points or combinations on the PPF represents efficient combination.
b) Combination T and W
Points or combinations below PPF shows under utilisation of resources and due to this unemployment increases in the economy.
c) 80 units of apples
Opportunity cost shows how many units of a commodity a person has to give up to increase some units of other good. So, in the above case, to increase 40 units of sweaters, person has to sacrifice 80 units of apples.
d) Zero
Movement from point T to R only increases the consumption of sweaters and does not reduce the consumption of apples so there is no opportunity cost in this case.
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Refer to the information provided in Figure 26.5 below to answer the question(s) that follow.
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