Production Possibilities Frontier

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QUESTION
Describe and graph what happens in each of the following situations. Use a separate graph for each
situation and always have an original PPF and if necessary an original point on the original PPF. This
means there will be 6 separate graphs. Each graph will have the original PPF and than whatever change
is necessary. Explain the changes you made in each situation.
1. A country produces both capital and consumer goods. Put capital goods on the vertical axis and
consumer goods on the horizontal.
a. Suppose there is a new technological breakthrough in producing consumer goods and
the technology is only used when consumer goods are produced. The new technology is
widely adopted in the consumer goods sector.
b. Suppose a new government comes into power and imposes a significant tax on the use
of automated machinery and modern production techniques for in both sectors.
c. Suppose massive new sources of oil and natural gas are found in the country. The new
resources are used to produce electricity.
2. A country produces both military and consumer goods. Put military goods on the vertical axis
and consumer goods on the horizontal.
a. A new government is elected and begins to prepare for war with Mars.
b. This new government forbids birth control and abortions and gives families extra money
for every child born.
c. The government goes to war with Mars and loses.

Sample Solutions
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