Question

Exercise on the Production Possibility Frontier: CD-Players and Shoes Suppose we see the following table of possible combinations of shoes and CD-players that society could produce (this year) CD-players (sets) Shoes (pairs 40 30 20 Alternative 30 50 60 65 a) Using the axes below, draw the production possibilities frontier (PPF) for these numbers. Be as exact and neat as possible. (Assume that the dots define a complete curve.) Leave room for drawing a new PPF (in the same graph) when you get to (e) below.

Using PPF_CD_SHOES.pdf please upload the proper graph and do the following two questions (feel free to draw your graph, snap a pic with your cell, and attach the file--or use a paint program, such as Google Draw, to make a digital copy):

1. Draw the appropriate PPF for the data in the PDF.

2. Suppose that the technology used in producing shoes improves, while that for producing CD-Players does not. Draw one possible new production possibilities frontier on your graph that you uploaded, which represents the the results of this change. Indicate the direction of the change that occurs with a big arrow.

3. After the change above, when 30 CD-Players are being produced, we will be able to produce more than _____ pairs of shoes.

Answer 1

a)

70 50 40 30 20 in 20 30 40 50 Shoes

b) Opportunity cost is the value of next best alternative foregone. To increase production of shoes by 10 units i.e. C to B, producer has to give up (50 - 30) = 20 units of CD Players.

So, opportunity cost is 20 CD Players.

c) feasible because it lies inside PPF.

d) Point B to A costs more CD Players to give up in order to produce 10 more shoes.

e) Improvement in technology increases the production of shoes which pivot PPF rightwards.

70 50 40 30 20 in 20 30 40 50 70 Shoes

f) More than 30 pairs of shoes.

g) outside; on