Question

Draw and Production Possibilities Frontier for a country that produces milk and cookies. What happens when a disease kills many of its cows on milk production and tell what an efficient outcome looks like on the graph.

Answer 1

We are given that the country produces two goods : cookies and milk. Production possibility curve shows the combination of the two goods an economy can produce given the resources .

If the cows die due to diseases , it implies that milk which we get from them would reduce because of their reduced population and hence would shift the production possibility curve inward in case of milk production.

As for the case of cookies the change would not happen , ie the production of cookies would remain unchanged because cows would not be having any effect on the production of cookies and hence no shift in the production possibility curve from the axis of cookies.

In the graph above , we can see that the blue coloured graph ie AB is the PPC in case when the cows are disease free (ie before the disease occured)

AFter the reduction in cow population , the quantity of milk produced in the country reduces , so the production possibility curve shifts inward ie from A to point C . On x axis the production of cookies is shown, which remains same as explained and the new PPF is CB.

Hence there is a reduction in the overall production of the economy due to the disease.

(You can comment in case of doubts )