Question

1 (20). Evidence accurmilates that the use ofchemical fertilizers, which increases agricutural production greatly, damages water quality. Analyse the choice between more food and cleaner water involved in using such fertilizers. Use a production possibility fontier (PPF) with agricuhural output on the vertical axis and water quality on the horizontal axis: a. Pick a point on the PPF that reflects some combination ofagriculturaloutput and water quality and mark t pomt A; in an economic sense, what does this point show us? b. Graphically show what happens to the PPF and pomt A if the ncreased use of fertiizers increases agricultural output, agan what does it mean in an economic sense? c. How would an improved fertilizer that ncreased agricultural output without further worsening water quality affect the original position of PPF and point A? Show graphically d. Suppose that a polhution free fertilizer was developed, how would this affect the PPF and poimt A?

Answer 1

This is a simple problem concerning PPC curves and economic allocation.