Question 1 (a)
The production possibility frontier, and points on, inside and beyond it
6 marks
- Time to write
- About 12 minutes
Question
Question 1 (a) · 6 marksWhat is understood by the production possibility frontier? How does the point below and above the production possibility frontier differ from the points on the frontier curve?
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- What…?How…?Two asks in one question: answer both.
- differSet the differences out in a table, basis by basis, not as two separate essays.
What the paper leaves open
As printed, the marks (6,6,6) are written once, at the end of part (c), for parts (a), (b) and (c): 6 marks each. As printed, "the point below and above the production possibility frontier" is singular, set against "the points" on the frontier; it stands as printed.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 Meaning of the PPF, what it is drawn for, its slope and shape 2 marks 3 min
- 2 Points on the frontier: full and efficient use, more of one only for less of the other 1½ marks 2 min
- 3 A point below: idle or wasted resources 1 mark 2 min
- 4 A point above: unattainable with present resources and technology 1 mark 1 min
- 5 Comparison ½ mark 2 min
- Check: every ask answered, key terms underlined 1 min
Easy marks
- Step 1 opens with the meaning: a one-line definition, the quickest mark in it.
Short on time? Trim steps 1 and 2 evenly rather than skip one: each is capped at its own marks. End with step 5 in a line or two.
Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
What the production possibility frontier is. Every economy has limited resources and can use them in many ways. The production possibility frontier (PPF) is the curve that shows, for each quantity of one good, the largest quantity of a second good the economy can produce when all its resources are fully used.
- What it is drawn for. It assumes two goods only, a given stock of labour, capital and other resources, and a fixed state of technology.
- Slope. It slopes downward: to have more of one good, some of the other must be given up, because resources have to be moved from one to the other. The quantity given up is the opportunity cost of the extra unit, and the slope at any point measures it; it is also called the marginal rate of transformation.
- Shape. It is usually bowed out (concave to the origin), because that opportunity cost keeps rising as more of one good is produced.
An illustration. Our own figures for an economy that makes only wheat and tractors with all its resources:
| Combination | Wheat (lakh tonnes) | Tractors (thousand) | Tractors given up for the extra 10 lakh tonnes of wheat |
|---|---|---|---|
| A | 0 | 20 | — |
| B | 10 | 18 | 2 |
| C | 20 | 14 | 4 |
| D | 30 | 8 | 6 |
| E | 40 | 0 | 8 |
Joined, A to E form the frontier. Two more points are used below: G (20 lakh tonnes, 8 thousand tractors) and H (30 lakh tonnes, 14 thousand tractors).
Points on the frontier. A, B, C, D and E all lie on the curve. At each of them labour and capital are fully and efficiently employed, so they are efficient levels of production. Moving along the curve, say from C to D, gives 10 lakh tonnes more wheat only by giving up 6 thousand tractors: on the frontier there is always a cost to having more of one good. Which of these points to produce at is the economy's central problem of choice.
A point below the frontier. G lies inside the curve: with the same 20 lakh tonnes of wheat the economy could have had 14 thousand tractors, not 8. A point strictly below the frontier means that some resources are unemployed or used wastefully, so less of both goods is produced than is possible. Factories idle during a slump, or workers left without jobs, put an economy at such a point. Moving from G towards C costs nothing in wheat: putting idle resources to work gives more of one good, or of both, with no sacrifice.
A point above the frontier. H lies beyond the curve: at 30 lakh tonnes of wheat the most the economy can make is 8 thousand tractors, not 14. Such a combination is desirable, since it has 6 thousand more tractors than D with the same wheat, and 10 lakh tonnes more wheat than C with the same tractors, but it cannot be produced with the resources available. Because the frontier is drawn for given resources and a given technology, H comes within reach only if these grow, for instance through more machines or better methods, so that the whole frontier moves outward.
| Basis | On the frontier (A to E) | Below it (G) | Above it (H) |
|---|---|---|---|
| Use of resources | Full and efficient | Some idle or wasted | Would need more than the economy has |
| Can it be produced now? | Yes | Yes | No |
| Cost of more of one good | The other good must be given up | None, until the frontier is reached | Not open until the frontier shifts out |
Conclusion. The PPF marks the boundary of what an economy can produce with its given resources and technology. Points on it are efficient and every gain in one good costs some of the other; a point below it shows unemployed or wasted resources; a point above it shows a combination the economy cannot yet reach.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Meaning of the PPF, what it is drawn for, its slope and shape | 2 |
| 2 | Points on the frontier: full and efficient use, more of one only for less of the other | 1.5 |
| 3 | A point below: idle or wasted resources | 1 |
| 4 | A point above: unattainable with present resources and technology | 1 |
| 5 | Comparison | 0.5 |
| Total | 6 |
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