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Check Your Understanding

  1. Question

    True or false? Explain your answer.

    1. An increase in the amount of resources available to Tom for use in producing coconuts and fish does not change his production possibilities curve.

      False. An increase in the resources available to Tom for use in producing coconuts and fish changes his production possibilities curve by shifting it outward, because he can now produce more fish and coconuts than before. In the accompanying graph, the line labeled “Tom's original PPC” represents Tom’s original production possibilities curve, and the line labeled “Tom’s new PPC” represents the new production possibilities curve that results from an increase in resources available to him.

    2. A technological change that allows Tom to catch more fish relative to any amount of coconuts gathered results in a change in his production possibilities curve.

      True. A technological change that allows Tom to catch more fish for any amount of coconuts gathered results in a change to his production possibilities curve. This is illustrated in the accompanying graph. The new production possibilities curve is represented by the line labeled “Tom's new PPC,” and the original production possibilities curve is represented by the line labeled “Tom’s original PPC.” Since the maximum quantity of coconuts that Tom can gather is the same as before, the new production possibilities curve intersects the vertical axis at the same point as the old curve. But since the maximum possible quantity of fish is now greater than before, the new curve intersects the horizontal axis to the right of the old curve.

    3. Points inside a production possibilities curve are efficient and points outside a production possibilities curve are inefficient.

      False. Productive efficiency is achieved at points along a production possibilities curve, but every point inside a PPC is inefficient because more of either good could be produced without producing less of the other. Points outside the PPC are simply unobtainable.
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