PPF - Problem Set
The Production Possibilities model describes the limits of what a society can produce. Consider
the following production possibilities for South Korea. Graph these production possibilities on
the figure and connect the points to form a Production Possibilities Frontier.
Production Possibility
1. List the three main assumptions of the PPF model.
a.
b.
c.
2. What is measured along the axes of a production possibilities graph? (goods or resources)
3. What area of the production possibilities graph represents feasible or obtainable output
combinations?
4. What area of the production possibilities graph represents feasible but inefficient output
combinations?
5. What part of the production possibilities graph represents unobtainable output combinations?
6. What area of the production possibilities graph represents feasible and efficient output
combinations?
Using the PPF you graphed in the figure above, what is the opportunity cost for wool coats (in
terms of TVs per coat) for each of the following moves:
Move
7. A to B?
8. B to C?
9. C to D?
10. D to E?
Answer the following True/False questions based on this figure.
__11. If the economy was restricted to
PPF0, point c would represent full
employment.
__12. From PPF0, a shift in the PPF curve
to PPF1 could be caused by an
increase in technology in the
production of TVs.
__13. Production at point f is not feasible
no matter which PPF is applicable.
__14. If the economy moves from point a
to
point c on PPF0, the necessary
reduction in wool coats to produce
more TVs is referred to as
opportunity costs.
__15. Devoting more resources to the
production of TVs causes the PPF to
shift from PPF0 to PPF2.
1. Suppose that Leisureland produces only two goods—food and suntan oil. Its production
possibilities are:
Food (pounds per month)
Suntan oil (gallons per month)
300
0
200
50
100
100
0
150
Busyland also produces only food and suntan oil, and its production possibilities are:
Food (pounds per month)
150
100
50
0
Suntan oil (gallons per month)
0
100
200
300
a. What are the opportunity costs of food and suntan oil in Leisureland?
Food =
Suntan Oil =
b. What are the opportunity costs of food and suntan oil in Busyland?
Food =
Suntan Oil =
2.
y
∙H
PPF
x
In the figure above, which of the following is not true regarding point H? Point H:
(A) Cannot be achieved by this economy today.
(B) Could be achieved today if the economy only achieved full employment.
(C) Could be achieved in the future by an enlargement of the economy’s resources base
(D) Could be achieved in the future by an advancement in technology.
(E) Could be achieved in the future by growth in the economy.
3. Amy lives with her parents and attends the local college. The college is operated by the state
government, and tuition is free. Jobs that pay $7 an hour are available to high school
graduates in the town. Amy’s mother, a high school graduate, takes a part-time job so that
Amy can go to school. Amy’s textbooks cost $280, and Amy gets an allowance of $140 a
month from her mother. List the items that make up the opportunity cost of Amy attending
college.
4. Other things being equal, a decreased supply of natural resources would be represented on a
production possibilities curve by a (an):
(A) Movement off the curve to a point inside the curve.
(B) Movement down along the curve.
(C) Movement up along the curve.
(D) Inward shift of the entire curve.
5. When an economy’s resources are not fully employed, then it must be true that the:
(A) Production point is located outside and to the right of the production possibilities curve.
(B) Production point is located along the production possibilities curve.
(C) Production point is located inside and to the left of the production possibilities curve.
(D) Production possibilities curve shifts to the right.
(E) Production possibilities curve shifts to the left.
6. Using a production possibilities curve, an economy that produces an output combination less
than the maximum possible is depicted by a point located:
(A) At the top corner of the curve.
(B) Near the middle of the curve.
(C) At the bottom corner of the curve.
(D) Outside the curve.
(E) Inside the curve.
Answers:
1. List the three main assumptions of the PPF model.
a. Only two items are produced in this economy
b. There is a fixed amount of resources and technology
c. Resources and labour are used in an efficient manner (full employment and all recourses are
used)
2. What is measured along the axes of a production possibilities graph? (goods or resources)
3. What area of the production possibilities graph represents feasible or obtainable output
combinations? On or inside the PPF
4. What area of the production possibilities graph represents feasible but inefficient output
combinations? Inside the PPF
5. What part of the production possibilities graph represents unobtainable output combinations? Above
the PPF
6. What area of the production possibilities graph represents feasible and efficient output
combinations? On the PPF
Using the PPF you graphed in the figure above, what is the opportunity cost for wool coats (in
terms of TVs per coat) for each of the following moves:
Move
7. A to B? 25 less TV’s
8. B to C? 50 less TV’s
9. C to D? 40 less TV’s
10. D to E? 80 less TV’s
11. T
12. T
13. T
14. T
15. F (same number of wool coats are being produced and we assume the amojntof resources
used is fixed so there must be an increase in the production process (ex. Technology) to move
from PPF0 to PPF2
1a) food = 50 gal suntan oil
b) food = 100 gal suntan oil
Suntan oil = 100 pounds of food
Suntan oil = 50 pounds of food
2. B
3. She is giving up a job at $7/hr
She would not have to pay for books $280
She would probably not be getting allowance if she was working so -140/mth.
4. D
5.C
6.E