Answer to Question #81321 in Microeconomics for Shaima

Question

A country produces ethanol from sugar, and the land used to grow sugar can be used to grow food crops.Suppose that country’s production possibilities for ethanol and food crops are as follows.
Ethanol(barrels Food crops(tons per
per day) day)
70 0
64 1
54 2
40 3
22 4
0 5
1) a) Draw a graph of the country’s production possibilities curve and explain how the graph illustrates scarcity.
2) b) If this country produces 49 barrels of ethanol a day, mhow much food must it produce to achieve production efficiency?
3) c) why does this country face a trade off on its PPC?

Answer 1

1) a) A production possibility curve (PPC) is the possible tradeoff of producing combinations of goods with constant technology and resources per unit time. To build this curve we should put points (70;0), (64;1), (54;2), (40;3), (22;4), (0;5) on the graph and connect them. The graph illustrates scarcity, because to produce more of one good we need to give up some amount of other good, because our resources are limited.
2) b) If this country produces 49 barrels of ethanol a day, then it must produce between 2 and 3 tons of food to achieve production efficiency.
3) c) This country faces a trade off on its PPC, because the resources are limited and to produce more of one good we need to give up some amount of other good.