Q7 Referring to the table in proble... [FREE SOLUTION]

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Chapter 1: Q7 (page 18)

Referring to the table in problem 5, suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities curve. Now, assume that a technological advance occurs in producing automobiles but not in producing forklifts. Draw the new production possibilities curve. Now, draw a production possibilities curve that reflects technological improvement in the production of both goods.
Production Alternatives
Type of Production
A
B
C
D
E
Automobiles
0
2
4
6
8
Forklifts
30
27
21
12
0

Short Answer

Expert verified

The production possibilities curve for the increased technology of producing forklifts is as follows.

The production possibilities curve for the increased technology of producing automobiles is as follows.

The production possibilities curve for the increased technology of producing both commodities is as follows.

Step by step solution

Initial production possibilities curve

According to the given data in the table, the production possibilities curve that was derived in Problem 5 is as follows.

The shape of the graph reflects the law of increasing opportunity cost for one more automobile.

Increase in the production technology of forklifts

As the technology of producing forklifts upgrades, the number of forklifts manufactured increases. However, there is no upgradation in the technology for producing automobiles. So, the maximum number of automobiles produced is 8.

As there is no exact data to identify the increase in the units of forklifts occurs, one can take a hypothetical point S above A and draw a new production possibilities curve moving beyond the intial level from the vertical axis. The curve shows a broader area for possible combinations.

Increase in the production technology of automobiles

Similar to the previous graph, the production technology only for automobiles advances and that for forklifts is constant. Therefore, the production possibilities curve moves out from the horizontal axis. One can assume a point M ahead of E, showing a broader area of attainable combinations of forklifts and automobiles.

Increase in the production technology of both the goods

As the production technology for both the goods increase, their production also increases. If there is equal upgradation in the technology for both the commodities, the production possibilities curve shifts outward from the initial possibilities curve, equally from both ends. So, the PPF curve shifts outward from AE to ST. Thus, the economy can make more efficient use of resources to produce more automobiles and forklifts.