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Chapter 12: Problem 28

What does a point inside the production possibility frontier represent?

Short Answer

Expert verified
A point inside the production possibility frontier represents under-utilization of resources and inefficiency in the allocation of resources, where the economy can increase the production of both goods without sacrificing the production of either good. This indicates that the economy has the potential to improve its efficiency and move towards the PPF to realize its full production potential.

Step by step solution

01

Introduction to Production Possibility Frontier

The production possibility frontier (PPF) is a graphical representation of the possible combinations of two goods that can be produced using given resources and technology, assuming that all resources are fully employed and used efficiently. The PPF is a curve or boundary line that shows the maximum attainable production level of both goods when resources are efficiently allocated.
02

Points on the PPF

Points that lie exactly on the PPF represent the production situations where resources are being allocated most efficiently, thus maximizing production levels. In this case, the economy is producing at its full capacity, and it is impossible to produce more of one good without decreasing the production of the other good. These points represent the maximum attainable level of both goods when resources are efficiently utilized.
03

Points inside the PPF

Points that lie inside the PPF represent a production situation where resources are not being fully employed or allocated efficiently. In this case, the economy can increase the production of both goods without sacrificing the production of either good. These points represent under-utilization of resources and unattained production levels. An economy operating inside the PPF has the potential to improve its efficiency and move towards the PPF to realize its full production potential.
04

Points outside the PPF

Points that lie outside the PPF represent unattainable production levels, given the current resources and technology. These points show a desired production level that cannot be achieved within the current constraints. In order to reach these points, the economy would need to improve its technology, obtain additional resources, or find a more efficient way to allocate its existing resources. In summary, a point inside the production possibility frontier represents a situation where resources are not being fully utilized or efficiently allocated, and the economy has the potential to increase its production of both goods without sacrificing the production of either good.

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Most popular questions from this chapter

Consider the case of global environmental problems that spill across international borders as a prisoner's dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can choose whether to protect the environment, at a cost of \(10,\) or not to protect it, at a cost of zero. If one country decides to protect the environment, there is a benefit of \(16,\) but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of \(32,\) which is divided equally between the two countries. a. In Table \(12.10,\) fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the environment.

Give an example of a positive externality and an example of a negative externality.

As the extent of environmental protection expands, would you expect the marginal benefits of environmental protection to rise or fall? Why or why not?

Is zero pollution possible under a marketable permits system? Why or why not?

Identify the following situations as an example of a negative or a positive externality: a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. b. Your neighbor paints his house a hideous color. c. Investments in private education raise your country's standard of living. d. Trash dumped upstream flows downstream right past your home. e. Your roommate is a smoker, but you are a nonsmoker.
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