1. Specialization and production possibilities Suppose Japan produces only table
ID: 1158168 • Letter: 1
Question
1. Specialization and production possibilities Suppose Japan produces only tablets and smartphones. The resources that are used in the production of these two goods are not specialized-that is, the same set of resources is equally useful in producing both smartphones and tablets. The shape of Japan's production possibilities frontier (PPF) should reflect the fact that as Japan produces more smartphones and fewer tablets, the opportunity cost of producing each additional smartphone The following graphs show two possible PPFs for Japan's economy: a straight-line PPF (PPFi) and a bowed-out PPF (PPF2). Graph 1 Graph 2 PPF PPF, k " SMARTPHONES SMARTPHONES Based on the previous description, the trade-off Japan faces between producing smartphones and tablets is best represented byExplanation / Answer
A production possibilities frontier (PPF) represents all the possible combinations of two goods that can be produced in an economy,with a given amount of inputs (resources and other factors) and these inputs having alternative uses. Since, the resources are scarce, they can be used to produce one good at a time. Thus, the resource foregone to produce that good is the opportunity cost of that good as the same resource could have been used for the production of other good. The production poissibilities frontier can be of three types : a common PPF (increasing opportunity costs); a straight line (constant opportunity cost) and an inverted PPF (decreasing opportunity cost).
In the provided problem, it is given that Japan produces only two products, smartphones and tablets. The resources are equally useful in producing both the products, that is, the opportunity cost for producing either of the products is equal that is, constant. Hence, the opportunity cost of producing each additional smartphone is remains constant.
Also, it is seen that the trade off (opportunity cost) of producing smartphones for producing tablets remains constant. This means that it will remain the same throughout PPC. Thus, the production possibilities frontier will be linear. It will be a straight line depicted in Graph 1.
The answers are:
a) The shape of Japan's production possibilities frontier (PPF) should reflect the fact that as Japan produces more smartphones and fewer tablets, the opportunity cost of producing each additional smartphone remains constant.
b) Based on the previous description, the trade-off Japan faces between producing smartphones and tablets is best represented by Graph 1.
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