ASSUMPTIONS OF OUR MODEL

You are the President of Paradiso and have given instructions to your engineers to provide economists in the country with information on the production of guns and food in Paradiso so that they can construct a production possibilities curve for Paradiso.

You receive the following information from the engineers:

Resources used Tons of food Number of guns
20% 400 0,1 million
40% 430 0,9 million
60% 460 1,9 million
80% 500 2,6 million
100% 550 3,0 million

1. What would your opinion as an economist be of the data provided by the engineers?

Both statements a and c are correct.

It is indeed the case that the only useful information is that if Paradiso uses all its resources (100%), then it will be able to produce 400 tons of food and three million guns. This provides you with one point on the production possibilities curve. You are not interested to know what this combination is at 20% or 40% but at a 100%.   The engineers clearly misunderstood their brief.

Think again.  To construct a production possibilities curve, you need to know the different combinations of food and guns that can be produced when a country’s resources are employed fully and efficiently.

Redo the question.

Both statements a and c are correct.

The engineers clearly misunderstood their brief.  The only useful information they provided is that if Paradiso uses all its resources (100%), then it will be able to produce 400 tons of food and three million guns. This provides you with one point on the production possibilities curve. You are not interested to know what this combination is at 20% or 40% but at a 100%.