Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 2: Problem 8

Explain how to derive a PPF. For instance, how is the extreme point on the vertical axis identified? How is the extreme point on the horizontal axis identified?

Short Answer

Expert verified
To derive a PPF, one must understand the concept of PPF, identify the resources and goods, and then plot the PPF accordingly. The extreme point on the vertical axis is identified when all resources are allocated to the good represented on the vertical axis, leaving none for the other good. Meanwhile, the extreme point on the horizontal axis is identified when all resources are focused on production of the good represented on the horizontal axis, leaving none for the other good.

Step by step solution

01

Understanding the Concept

One must first understand what a PPF is. It is a curve that depicts all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors.
02

Identifying the Resources and Goods

Identify the resources available (like labor, capital, etc.) and the two goods to be produced. Assume that these resources are to be fully utilized.
03

Deriving the PPF

Plot the maximum amount of one good that can be produced for various quantities of the other using the available resources. The curve formed as a result is the PPF.
04

Identifying the Extreme Points

The extreme point on the vertical axis is identified when all resources are allocated to the production of the good represented by the vertical axis, and no resources are allocated to the production of the good represented by the horizontal axis. On the other hand, the extreme point on the horizontal axis is identified when all resources are allocated to the production of the good represented by the horizontal axis, and no resources are allocated to the production of the good represented by the vertical axis.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

If the slope of the PPF is the same between any two points, what does this relationship imply about costs? Explain your answer.

Suppose a nation's PPF shifts inward as its population grows. What happens, on average, to the material standard of living of the people? Explain your answer.

Describe how each of the following would affect the U.S. PPF: (a) a war that takes place on U.S. soil, (b) the discovery of a new oil field, (c) a decrease in the unemployment rate, and \((\mathrm{d})\) a law that requires individuals to enter lines of work for which they are not suited.

Explain how the following can be represented in a PPF framework: (a) the finiteness of resources implicit in the scarcity condition, (b) choice, (c) opportunity cost, (d) productive efficiency, and (e) unemployed resources.

What condition must hold for the PPF to be bowed outward (concave downward)? To be a straight line?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free