Unit 1, Chapter 2

Mr. Maurer Name: _______________________________

AP Economics Date: _____________________

Chapter 2, Problem Set #3 - Production Possibilities Tables and Curves

1. The following is a production possibilities table for two products, corn and cars. Corn is
measured in units of 1000 bushels and cars are measured in units of 100,000.

Combination Corn Cars a. Follow the general rules for making graphs. Plot the data
A 0 7 from the table on your own graph paper to create a
B 7 6 production possibilities curve. Place corn on the vertical axis
C 13 5 and cars on the horizontal axis.
D 18 4
E 22 3
F 25 2
G 27 1
H 28 0

Cars Opportunity Cost of b. Fill in table to the left showing the opportunity cost per
Production unit of producing the 1st through the 7th car unit in terms of
1st corn units.
2nd
3rd c. What is the marginal opportunity cost of the 3rd unit of cars
4th in terms of corn?
5th
6th d. What is the total opportunity cost of producing 6 units of
7th cars?

2. The following graph is a production possibilities curve. Draw on this graph:

a. a production possibilities curve that indicates greater efficiency in producing Good A only
b. a production possibilities curve that indicates greater efficiency in producing Good B only
c. a production possibilities curve that indicates an increase in the resources available to the
economy.
Unit 1, Chapter 2

3. Refer to the graph above to answer the following five questions.

a. Which points on the graphs represent efficiency in production?
(A) B and C (B) A and D (C) A, B, C, and D (D) A, B, C, D, and E (E) All six points

b. For this economy, an increase in the quantity of capital goods produced without a
corresponding decrease in the quantity of consumer goods produced
(A) cannot happen because of the law of increasing opportunity cost.
(B) could be represented by a movement from point E to point A.
(C) could be represented by a movement from point C to point B.
(D) could be represented by a movement from point E to point B.
(E) can only happen with an increase in resources or technology.

c. An increase in unemployment could be represented by a movement from point

(A) D to point C. (B) B to point A. (C) C to point F. (D) B to point E (E) E to point B

d. Which of the following might allow this economy to move from Point B to Point F?
(A) more workers (B) discovery of new resources (C) building new factories
(D) technological improvements (E) all of the above

e. The production possibilities curve shows the trade-off between consumer goods and
capital goods. Since capital goods are a resource, an increase in the production of capital goods
today will increase the economy’s production possibilities in the future. Therefore, all other things
equal (ceteris paribus), producing at which point today will result in the largest outward shift of the
PPC in the future?

4. Assume that an economy can choose between producing food and producing shelter at a constant
opportunity cost. Draw a correctly labeled production possibilities curve for the economy. On your
graph use the letter E to label a point that is efficient in production. Use the letter U to label a point
at which there is unemployment. Use the letter I to label one of the points that is not feasible.
Unit 1, Chapter 2

5. Refer to the graph below for the following questions:

a. Does this country’s PPC exhibit increasing

opportunity costs? Explain.

b. If this country were to go to war, the most likely

move would be from point C to which point.
Explain.

c. If the economy entered into a recession, the country would move from point C to which point?
Explain.

6. The following table provides six possible production combinations that Youngstown can produce
in one year from its available resources with its current technology.
Combination Bicycles Tents
A 100 0 a. Sketch Youngstown’s PPC. Put bicycles on the x-axis
B 90 10 and tents on the y-axis.
C 70 25
D 40 36 b. Suppose Youngstown is currently producing at
E 20 42 combination C. What would be the opportunity cost of
F 0 45 moving from combination C to combination B? To
combination D?

c. Explain why Youngstown’s PPC takes the shape that it does.

7. There are two islands in the middle of the ocean, and these two islands produce fish and baskets.
Big Island can produce either 100 fish and 0 baskets per day or 0 fish and 200 baskets per day. Big
Island can also produce any combination of fish and baskets that lies on its linear PPC. Small Island
can produce either 80 fish and 0 baskets per day or 0 fish and 80 baskets per day. Small Island also
has a linear PPC.

a. Sketch Big Island and Small Island’s PPCs on two separate graphs. Place fish/day on the
y-axis and baskets/day on the x-axis.
Unit 1, Chapter 2

b. What is the slope of Big Island’s PPC? Of Small Island’s PPC?

c. What is the opportunity cost of producing an additional basket on Big Island? What is the
opportunity cost of producing an additional basket on Small Island? Which island can produce
baskets at a lower opportunity cost?

d. What is the opportunity cost of producing an additional fish on Big Island? On Small
Island? Which island can produce fish at a lower opportunity cost?

8. The country of Krausland produces two goods from its available resources and technology. The
only resource that Krausland has is labor. It takes 3 hours of labor to produce 2 widgets and 4
hours of labor to produce 1 gadget. For this question, assume that the PPC for Krausland is a
straight line.
a. Sketch the PPC for Krausland. (Hint: Choose a relevant time period, e.g. 24 hours, as your
labor constraint and sketch your PPC based on this amount of time and labor.) Graph widgets on
the y-axis and gadgets on the x-axis.

b. What is the slope of your PPC?

c. What is the opportunity cost of producing an additional widget in Krausland?

d. What is the opportunity cost of producing an additional gadget in Krausland?

9. The country of Spaldingstan also makes widgets and gadgets. It takes 2 hours of labor to produce
a gadget and 5 hours of labor to produce a widget. For this question, assume that Spaldingstan’s
PPC is linear.
a. If you want to draw a PPC for Spaldingstan, what do you need to do first?

b. Sketch the PPC for Spaldingstan, assuming that it has 120 hours of labor available. Put
gadgets on the x-axis and widgets on the y-axis.

c. What is the slope of the PPC?

d. What is the opportunity cost of an additional widget?

e. What is the opportunity cost of an additional gadget?

f. Now suppose that Spaldingstan’s population increased and it has 240 hours of labor
available rather than 120. Does this affect the opportunity cost of producing widgets or gadgets?
Explain.