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Chapter 21: Problem 1

Although a production possibilities frontier is usually drawn for a country, one could be drawn for the world. Picture the world's production possibilities frontier. Is the world positioned at a point on the PPF or below it? Give a reason for your answer.

Short Answer

Expert verified
Given that the world is not efficiently utilizing all available resources, due to factors such as unemployment, inequality, and inefficient allocation of resources, it can be argued that the world is operating at a point below its Production Possibilities Frontier.

Step by step solution

01

Understand the Concept of PPF

First, it's crucial to understand what the Production Possibilities Frontier (PPF) represents. The PPF is a model in economics that shows the maximum combinations of two goods or services that can be produced in a set time period within an economy when all resources are fully and efficiently utilized.
02

Consider the Current State of the World Economy

Next, consider the state of the world's economy. Are all resources being fully and efficiently utilized? Remember that inefficiency, unemployment, unused resources and sub-optimal allocation of resources could indicate that the world is operating beneath its PPF.
03

Construct Your Answer

Finally, construct your answer based on your understanding of the PPF and the current economic state. Remember that while the PPF is a theoretical model and in reality it is nearly impossible for an economy, let alone the world economy, to be operating at the exact point on the PPF, as there will always be some inefficiencies and unused resources.

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Most popular questions from this chapter

Some economists have argued that, because domestic consumers gain more from free trade than domestic producers gain from (import) tariffs and quotas, consumers should buy out domestic producers and rid themselves of costly tariffs and quotas. For example, if consumers save $$\$ 400$$ million from free trade (through paying lower prices) and producers gain $$\$ 100$$ million from tariffs and quotas, consumers can pay producers something more than $$\$ 100$$ million but less than $$\$ 400$$ million and get producers to favor free trade too. Assuming that this scheme were feasible, what do you think of it?

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