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    Scarcity And Choice: The Production Possibilities Frontier

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    One of the basic premises in Economics is that we have unlimited wants but limited resources that can be used to satisfy these wants. Accordingly, we have to make choices in terms of what resources we use and what products we will produce with those resources.

    In 100-200 words, describe how the Production Possibilities Frontier illustrates the concept of scarcity described above.
    Draw a graph showing the PPF using Template A. Assume our local economy has only one resource under consideration, tomatoes. They can be used to produce tomato sauce or diced tomatoes. You do not need to submit this graph. The various possible combinations are:

    Choice Units of Production
    Tomato Sauce Diced Tomatoes
    A 100 0
    B 80 10
    C 60 20
    D 40 30
    E 20 40
    F 0 50

    Summarize your findings for part B. Describe what would happen to the PPF if the supply of tomatoes increased because of good weather, and if the supply of tomatoes decreased because of bad weather.

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    Solution Preview

    The production possibilities frontier shows the combinations of goods that can be produced if all resources are fully utilized. Points inside the PPF are attainable, but they are inefficient as some resources are unused or misallocated. Points outside the PPF are unattainable. Thus, the PPF draws a boundary between the combinations of goods that can be produced and those that cannot. This boundary arises because with a fixed amount of labour, land, capital, entrepreneurship and technology, the amount of goods that can be produced ...

    Solution Summary

    The production possibilities frontier is assessed in 348 words.