The production possibility curve is based on the following Assumptions: (1) Only two goods X (consumer goods) and Y (capital goods) are produced in different proportions in the economy. The production possibilities frontier model assumes which of the following? The boundary of the production possibilities set is known as the production-possibility frontier (PPF). An economy, to achieve efficiency, must decide what combination of goods and services … On the other hand, point Y, as we mentioned above, represents an output level that is currently unattainable by this economy. measures the opportunity cost of producing one more unit of a good. Correct Answer: C. Any level of the two products that the economy produces is currently possible. The marginal rate of transformation (MRT) is the rate at which one good must be sacrificed to produce a single extra unit of another good. The production possibility frontier demonstrates that there are, or should be, limits on production. An economy can only be produced on the PPF curve in theory. Like any economic analysis, production possibilities analysis builds on certain preconditions or assumptions. But how do we show scarcity in our simple graphical model? Scarcity is illustrated by the addition of what we will call a production possibility frontier (PPF) to our graph, as shown in Graph 2. The points on the frontier show the bundles that are efficient and attainable. This is the currently selected item. Therefore, in situations with limited resources, only the efficient commodity mixes are those lying along the PPF curve, with one commodity on the X-axis the other on the Y-axis. D. the economy produces only two products. Question 37 Which of the following is not an example of an economic model Select the correct answer below: O the production possibilities frontier O the demand and supply framework O the market price of a good O the flow of payments in the economy According to the PPF, points A, B, and C on the PPF curve represent the most efficient use of resources by the economy. The production possibilities frontier model assumes all of the following except. Conversely, any point outside the PPF curve is impossible because it represents a mix of commodities that will require more resources to produce than are currently obtainable. With an optimal two-part tariff. That would mean it can produce fewer cars, which it is much more capable of doing. Country B has an abundance of fertile land but very little steel. In other words, you face a trade-off: any time you spend harvesting pineapples is time that cannot be spent looking for crabs. Assume that the following table describes the production possibilities frontier (PPF) confronting an economy. B) a market economy is more efficient in producing goods and services than is a centrally planned economy. A new curve, represented in the figure below on which Y would fall, would show the new efficient allocation of resources. B. labor, capital, land and natural resources are fixed in quantity. Similarly, for Country B, the opportunity cost of producing both products is high because of the effort required to produce cars given its lack of steel. In business analysis, the PPF operates under the assumption that the production of one commodity can only increase if the production of the other commodity decreases, due to limited available resources. Keep in mind that A, B, and C all represent the most efficient allocation of resources for the economy. In reality, economies constantly struggle to reach an optimal production capacity. 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