Question

using a production possibilities graph, show your trade-off between entertainment expenses and expenses for necessities.

Answer 1

A production possibility graph shows all the possible combinations of two goods, which are entertainment and necessities in this case, which can be produced by the nation, region, person or an economic entity with given resource and technique of production.

A PPF shows a tradeoff because the resources for production are limited and to produce more of one good, the less of other good will be produced. This indicates that each unit of a good has its opportunuty cost in terms of loss amount of other good. Here we see a tradeoff between entertainment expenses and expenses for necessities. Because resources (expenses) are fixed, if we are willing to have more entertainment to move from A to B, we would be required to have less of necessitiies.