Answer to Question #249017 in Microeconomics for Gogi

Question

Suppose an economy produces food and clothing. Graphically illustrate and explain the following. Let food on the x axis and clothing on the y axis
A) identify the efficient level of production for both food and clothing. Give rationale why it is efficient level
B) discuss the possible trade offoffand opportunity cost that may be faced by this economy
C) suppose there is a drought in the economy. Graphically illustrate and explain the impact of drought in production

Answer 1

(A)

The efficient level of production for both food and clothing is shown on the graph by all the points that lie on the curve including points A,B and C.

This is because all the points that lie on the curve give a representation of the most efficient allocation of resources for the economy. Point Y represents a goal that the economy cannot attain with its present levels of resources. Point X signifies that there is inefficient utilization of resources in the economy.

(B)

For instance, the curve may show that in the economy, either 40 pieces of clothing and 7 bags of food can be produced or 70 pieces of clothing and 3 bags of food. The economists must determine which item is more urgently needed.In this case, the opportunity cost of producing an additional 30 pieces of clothing is equal to 4 bags of food.

For the economy to increase production of food, it must give up some of the resources that it is currently using in the production of clothing. Similarly, if the production of clothing is to be increased, some of the resources used in food production have to be given up.

(D)

If drought hits the economy, this will result in fewer resources to be used in the production process. This means that more of the few available resources will be channeled into the production of food as opposed to the production of clothing. The efficient level of production will be at a point such as point A on the graph provided above.