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Imagine an economy with two types of goods; those that are tradable T (goods that can cross...

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Imagine an economy with two types of goods; those that are tradable T (goods that can cross borders) and those that are not tradable NT. The technologies to produce them out of labor are T(L) = 2L and NT(L) = 4L. The total amount of labor in this economy is L = 500. How would you label the following points (some are feasible, some efficient, some are unfeasible...)

a) (T, NT) = (0, 1000).

b) (T, NT) = (2000, 0)

c) (T, NT) = (100, 1800)

d) (T, NT) = (1000, 0)

e) (T, NT) = (100, 1000)

f) (T, NT) = (500, 1200)

g) (T, NT) = (1, 1998)

Production Possibility Curve:

A production possibility curve is a graphical representation of different combinations of goods which can be produced by different combination of factors of production. A production possibility curve also describes the concept of opportunity costs as well as the concept of trade-offs.

Answer and Explanation: 1

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As given, T (L) = 2L, and this implies that tradable goods (T) requires 0.5 units of labor to produce 1 unit of output and NT (L) = 4L: this implies...

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Applying the Production Possibilities Model

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Chapter 1 / Lesson 4
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The production possibility model illustrates scarcity and efficiency. Explore how opportunity costs affect the production possibility curve and discover why it is bowed outward on a graph.


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