Question

Provide for a production possibilities analysis, a numerical example as a model to capture, in an efficiently run economy, the concepts of scarcity and specialization

Answer 1

produces oleh onter! to 20 Food in Production Possibilities Model Cloth Suppose country x 400 produces only a goods (Food & Cloth) L A 181C Resources available are constant. on tood . 100 workers Now country & can produce either 20 Read units of Food or 40 units of cloth using these 100 workers in a month. So, 204 40 are the intercepts of PPF: The "boundary" represents scarcity or limitations of only 100 workers. Country x can never produce beyond boundary, so point (D) in unattainable

(64) represent the efficient production combinations are which on the s boundary which are of PPF. Point (A) is underutilization or wastage of resources. It defects unemployment, - the opportunity cost of 20 Food Let us . 240 Cloth. consider another country to Clothy 60 30 PPFY (Workers = 100) same resources, Here the o 10 20 Food at love the opportunity cost of 20 food = 60 Cloth So country x has a leneer opportunity cost in Food production. So has a Comparative advantage in Food. Hence, & should specializen in Food a & Y should specialize in colla Before P ad Production After specialization Food: 10110 120 120 Cloth: 20 + 30 = 150 [60] So, 10 units more cloth produced after So, specialization leads to gains from trade! cle specialization in world market. I