Chapter 1R, Problem 2FRQ

a)

To determine

The question requires us to draw a production possibilities curve for Lunchland, and correctly label the inefficient use of resources and bundles that are not possible.

Answer to Problem 2FRQ

Explanation of Solution

The following graph represents the production possibility curve (PPC) of the Lunchland economy:

  

In the above graph, the x-axis represents the quantity of peanut butter, and Y-axis represents the quantity of jelly. Line EF shows the production possibilities curve.

Any combination of two goods (points C and D) that lies on the PPC will be efficient.

1. Point A in the graph shows the inefficient use of resources. Any point that lies below the PPC indicates the inefficient use of resources because producers can increase their production by using the given resources. To achieve the efficiency, the producers should increase their production from point A to point C.
2. Point B in the graph shows the resources that are currently not possible to achieve. Any point that lies beyond the PPC indicates the combinations of goods that are not currently possible to produce because of lack of resources production at point B is not possible.

Economics Concept Introduction

The production possibility curve shows the trade-offs between the two products an economy is producing by using the given resources.

b)

To determine

The question requires us to identify two things that enable the Lunchland to produce or consume the inefficient bundles.

Explanation of Solution

Two factors that enable the Lunchland to produce or consume the combination which are currently not possible are:

• Improved technology
• Increase in resources.

These both will increase the production of goods and services and thus enable the Lunchland to produce or consume more.