Question

Draw a PPC that shows the trade-offs between the production of cotton and soybeans.

a. What would happen to the curve if there was a prolonged drought?

b. What would happen to the curve if we found a way to make soybeans resistant to insects, allowing crops to double?

c. Where would we produce on the graph if agriculture prices were so low that instead of planting all our land with crops, we rented half the land out to store equipment?

d. Where would we produce on the graph if we were using all of our resources for either soybeans or cotton?

Answer 1

Ans) PPC shows possible combination of goods that can be produced in an economy. Any new development, increase in natural resources, increase in human resource etc will lead to an outward shift of PPC. While any activity that destroys factors of production will lead to an inward shift of PPC.

When all the resources are being utilized fully, the point lies somewhere on PPC and if resources are not fully utilized, we are operating at a point inside PPC.

1) A drought will lead to inward shift of PPC.

2) Technological improvements in production of soybean will rotate the PPC outward from the side of soybean.

3) If all resources are not fully utilized, point is inside PPC.

4) Point will be on PPC but either on x or y axis.