Product possibilities curve worksheet

Question

1. Here is the production possibilities table for war goods and civilian goods:

______Production Alternative______   ­Types of Production                             A            B            C            D            E
Automobiles	0	2	4	6	8
Missiles	30	27	21	12	0

1. Draw a product possibilities curve for automobiles and missiles using the data above.
2. If the economy is at point C, what is the cost of one more automobile? One more missile? Explain how the production possibilities curve reflects the law of increasing opportunity costs.
3. What must the economy do to operate at a specific point of the production possibilities curve?

2. Referring again to the production possibilities curve above:

a. Improvement occurs in the technology of producing missiles but not in the technology of producing automobiles. Draw the new production possibilities curve.

b. Now assume that a technological advance occurs in producing automobiles but not in producing missiles. Draw the new production possibilities curve.

c. Now draw a production possibilities curve that reflects technological improvements in the production of both products.

Opportunity Cost Review:

1. Suppose you arrive at a store expecting to pay $100 for an item but learn that a store 2 miles away is charging $50 for it.
   1. Would you drive there and buy it?
   2. How does your decision benefit you?
   3. What is the opportunity cost of your decision?
2. Now suppose you arrive at a store expecting to pay $6000 for an item but discover that it costs $5950 at the other store.
   1. Do you make the same decision as before?
   2. Perhaps surprisingly, you should? Explain why.