Question

Assume a desert island economy in which labor is the only scarce resource and labor can be used to gather food (coconuts) or to build huts. There are six equally productive individuals on the island. Each inhabitant can gather 25 coconuts in one day or build one hut in one day.

Draw the production possibilities frontier of the trade-off between coconuts and huts.

                                     

Assume that in one day, two huts were built and 75 coconuts were gathered. What does this situation depict?

. What would have to occur for three huts to be produced along with 100 coconuts?  

Answer 1

Each inhabitant can gather 25 coconuts in one day or build one hut in one day.

So six equally productive individuals can gather 150 coconuts or build 6 hut in one day.

Following is the production possibilities frontier.

2 huts and 75 coconuts were gathered in one day. This situation reflects the inefficient use resources as this production combination lies inside the production possibilities frontier.

3 huts and 100 coconuts required some technology advancement or economic growth because this combination of production lies outside the production possibilities frontier.