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The production possibilities frontier represents all combinations of two goods that would be technologically efficient - Assignment Example

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A technological advancement of the pumpkin industry leads to the resources employed in production of pumpkins to be more productive. As a result, the change in the production possibility frontier is as shown in the diagram below (figure 2).
2. If there is an expansion in…
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Figure presents the initial situation from the text. Figure The initial situation A technological advancement of the pumpkin industry leads to the resources employed in production of pumpkins to be more productive. As a result, the change in the production possibility frontier is as shown in the diagram below (figure 2).
Figure 2: The effect of a technological change favoring only the pumpkin industry
2. If there is an expansion in labor that can be used for both industries, then given other resources more of both goods can be produced. Thus, the production possibility frontier will shift outwards. This is shown in the figure below:
Figure 3: Effect of expansion in labor force that can be employed in both sectors
3. If a new fertilizer is improved, it will improve the productivity of the pumpkin industry but not of the pretzel industry. As a result the effect will be similar to the effect of a technology change in favor of pumpkin industry shown in figure 2.
4. If usable farmland reduces by 10% then the amount of output of pumpkins producible given the rest of the resources of the economy falls, but the amount of output producible by the pretzel industry remains unchanged. Therefore, the production possibility frontier shrinks inward on the vertical axis, but its point remains unchanged on the horizontal axis. This is shown in figure 4.
Figure 4: Effect of reduction in usable farmland Read More
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