Figure 2: Production Possibilities Frontier 100 90 80 70 #8 60 20 10 0 10 20 040
ID: 1154025 • Letter: F
Question
Figure 2: Production Possibilities Frontier 100 90 80 70 #8 60 20 10 0 10 20 04050 700100 Answer questions 6 through 10 in reference to the Production Possibilities Frontier (PPF) shown in Figure 2. Assume, as in usual in PPF diagrams, that both products are goods (that is to say, more of both are preferred). In questions 6 through 9, the phrase "is clearly better than" indicates that for all possible relative valuations of the two goods the first point would be preferred to the second. 6. True or False: In Figure 2, point A is clearly better than point B? 7. True or False: In Figure 2, point E is clearly better than point A? 8. True or False: In Figure 2, point C is clearly better than point B? 9. True or False: In Figure 2, point C is clearly better than point D? If we assume that point E is preferred to point D, then it must also be the case that point D is preferred to point C. Answer TRUE or FALSE in the blank provided and explain your answer below. 10.Explanation / Answer
The production possibility frontier is a curve depicting the maximum amount of outputs that can be produced with the given set of inputs.
6. False - at point B, more of both automobiles and airplanes are produced as compared to point A. So, B is better than A.
7. True - E is always better as it lies on the producttion possibility frontier. At point E, same amount of automobiles is produced but more of airplanes is produced. Moreover, at point A, inputs are underutilised.
8. True - C is always better because it lies on the production possibility frontier. Also, at point B, inputs are underutilised. It's always better when there is full utilisation of inputs (on the PPF curve)
9. False - Both B and C lies on the production possibility frontier. So, inputs are fully utilised at both the points. So both the points are equally preferable.
10. True - If we assume that point E is preferred to point D, it means that the more of airplanes are preferred to more of automobiles. If this is the case, point D is preferred to point C.
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