The figure below depicts three production possibility frontiers for an economy that produces two goods, pizza and BMWs. Refer to the figure when you answer the questions.
Part 1
A movement from point A to point B could occur due to
Part 2
A movement from point A to point C could occur due to
Part 3
A movement from point C to point D could occur due to
Homework Answers
PART 1
Movement from point A to point B indicates movement from PPF1 to PPF3.
The intercept of both PPF1 and PPF3 on X-axis on which quantity of BMWs produced is taken is same.
However, intercept of PPF3 is higher than the intercept of PPF1 on Y-axis on which quantity of pizza produced is taken.
This indicates that there is change in technology with respect to the production of pizza leading to more production of pizza with the same set of resources.
Thus,
A movement from point A to point B could occur due to advancements in pizza production technology only.
PART 2
Movement from point A to point C indicates movement from PPF1 to PPF2.
There is parallel shift of the PPF in this case which indicates that overall production capability of economy has increased.
This could be due to increase in capital or due to overall improvement in technology.
Thus,
A movement from point A to point C could occur due to an increase in the amount of capital.
PART 3
A movement from point C to point D indicates downward movement along the PPF2.
This means production of BMWs have been increased while production of pizza have been decreased.
Thus,
A movement from point C to point D could occur due to a change in consumers' tastes.
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