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    production possibility frontier for one resource

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    Suppose that a simple society has an economy with only one resource, labor. Labor can be used to produce only two commodities- X, a necessity good (food) and Y, a luxury good ( music and entertainment). Suppose that the labor force consists of 100 workers. One laborer can produce either 5 units of necessity per month ( by hunting and gathering) or 10 units of luxury per month ( by writing songs, playing the guitar, dancing, and so on).

    A)On a graph, draw the economy's production possibility frontier (ppf). Where does the ppf intersect the Y-axis? Where does it intersect the X-axis? What meaning do those points have?

    B) Suppose the economy produced at a point inside the ppf. Give at least two reasons why this could occur. What could be done to move the economy to a point on the ppf?

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    Solution Preview

    First you need to determine the total quantities of each good that 100 laborers can produce. That gives us 500 units of food or 1000 units of music. The PPF will intersect the axes at these points. See the attached file. ...