Theory question 101
Basic ConceptsSection A (data response: answer one question only from this section)
The table below shows the various possible combinations of military and civilian goods produced by a country, using the available resources and technology. Use the table to answer the questions that follow.
Military Goods (in tonnes) | Civilian Goods (in tonnes)
0 | 200
20 | 160
40 | 120
60 | 80
80 | 40
100 | 0
(a) Draw the production possibility curve (PPC).
(b) Indicate points S and K at which production is not feasible.
(c) Indicate points M and N at which resources are not efficiently utilized.
(d) What does the downward slope of the PPC indicate?
(e) Why is production not feasible at points S and K?
Show the model answer
(a) Plot military goods on one axis and civilian goods on the other; join (0, 200), (20, 160), (40, 120), (60, 80), (80, 40), (100, 0). The PPC is a straight line because each extra 20 tonnes of military goods always costs 40 tonnes of civilian goods.
(b) S and K are any points outside (to the right of / above) the curve, e.g. (60, 120) and (80, 100).
(c) M and N are any points inside the curve, e.g. (20, 80) and (40, 60).
(d) The downward slope shows opportunity cost: to produce more of one good, some of the other must be given up, because resources are scarce (here 2 tonnes of civilian goods per tonne of military goods).
(e) Production at S and K needs more resources or better technology than the country has at present, so it cannot be reached with the available resources.
Label the axes, plot all six points and mark S, K outside and M, N inside the curve.