Answer to Question #201746 in Macroeconomics for Hunadi

Question

1. Use a production possibilities curve to distinguish between maximum attainable combinations, attainable but inefficient combinations and unattainable combinations of the production of two goods. (20)

Answer 1

Production possibility Frontier

Introduction

The production possibility frontier is a curve that depicts possible combinations of the amounts of two items produced in an economy using the available resources and technology (Weston, 1976). The PPF curve shows all the possible options of output that the two products can be created using the factors of production available resources and level of technology necessary. The economy employs many economic concepts like allocative efficiency, opportunity cost, productive efficiency, economies of scale, resource efficiency, and resource scarcity when resources are fully and efficiently utilized to produce certain goods (Almubidin, 2019). This work aims to use a production possibility curve to differentiate between maximum attainable combinations, attainable but inefficient combinations, and unattainable varieties of the production of two items (Weston, 1976).

Below is A production possibility curve showing the production of guns and butter.

           A Maximum possible combination makes the best use of the resources available (Almubidin, 2019). For the best doable variety of technology or resources available, the economy will be at point b or c, implying that there will be more production created between the two places. Moving from point B to point C, and then C to D, indicates a tradeoff between the two items made, since for the economy to create more of one good, the other product will be produced in fewer quantities (Weston, 1976). As a result, to make more of one product, the business will discontinue production of the other product.

           The points in the production possibility frontier that are unattainable are points on the PPF curve or lie to the left side of the curve since they are produced using the available resources without exhausting them. If the available resources are not used to their maximum potential, the possible combination becomes inefficient (Almubidin, 2019). The unattainable combinations are points in a PPF that appears on the right side of the PPF curve; for example, x on the graph shows that you cannot produce at point x 0since the resource available cannot make at that point (Weston, 1976). We can manufacture at any place within the PPF or on the border. When all of the available factors of production are utilized, full employment is achieved. An unattainable combination combines two products that cannot be created with the given resources and technology (Almubidin, 2019).

           According to the graph, the PPF, points B, D, and C on the PPF curve show the points where the economy utilizes resources efficiently. Point A symbolizes wasteful resource utilization since the resources are not used fully to produce the two products. In contrast, point X indicates a goal that the economy cannot achieve since the available resources cannot make at point x. All of the production potential curve points are reachable but inefficient since they do not fully utilize the available resources. When the resources are being used to the greatest extent possible, the maximum combination of commodities is reached, and from the curve, they are points that lie on the turn, such as points B and C (Weston, 1976).

References

Almubidin, S. (2019). Production Possibility Frontier & its Relation to Other        Costs. International Journal of Tax Economics and Management.

Weston, H. (1976). The estimation of marketing efficiency. European Journal of Marketing.