ECON 200 - PRINCIPLES OF ECONOMICS: INTRODUCTION

Phil Martinez, Lane Community College

PRODUCTION POSSIBILITIES

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Perhaps the best and most famous guns vs butter production possibilites analysis was given in a speech to the American Society of Newspaper Editors on April 16, 1953, by President (and Five Star General) Dwight D. Eisenhower when he stated: Every gun that is made, every warship launched, every rocket fired signifies in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children ... This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

Production Possibilities Practice Questions: Multiple Choice

Instructions: Use the graphs below to answer the following questions.

1. Which graph below illustrates the impact of a hurricane on the productive capacity of an economy?

2. Which graph below represents the impact of an increase in the size of the cattle herd in an economy?

3. Which graph below illustrates the impact of rising unemployment and lay offs in an economy?

4. Which graph below represents the impact of an influx of immigrants entering the work force?

5. Which of the graphs below best represents the impact on production possibilities of a decrease in wasteful production and an increase in recycling rates?

6. Which graph below best represents the impact on an economy's production possibilities of a depletion of resources?

7. Which graph below represents the introduction of cloning technology, which allows the most production milk cows to be reproduced identically?

8. Which graph below represents an impossible increase in production possibilities?

9. Which graph best represents the impact on the production possibilities of the end of a war and the re-orientation of military production to civilian production?

10. Which Graph best represents the impact on the production possibilities of a Mad Cow Disease epidemic in a country's dairy herds which requires that all infected herds be destroyed and buried?

11. Suppose a country prepares to enter a war. How would this change be represented on a production possibilities curve?

12. Which graph represents the destruction of armaments and weapons production facilities at the end of a war?

ANSWERS: 1. G; 2. B; 3. A; 4. E; 5. E; 6. G; 7. B; 8. K; 9. C; 10. D; 11. I; 12 F

Production Possibilities Practice Questions: Graphing

Instructions: Answer the questions below. Label each graph. Graph quantity  missiles along the horizontal axis.This assignment is easier to understand if you use graph paper.

1. The following is the production possibilities table for war goods and civilian goods:

a. Graph the data above. Put wheat on the verticle axis and missiles on the horizontal axis.

b. If you are at point A, how much wheat can be gained from giving up 1 missile?

c. If you are at point D, how much wheat can be gained from giving up 1 missile?

d. Why are the answers to b and c above different, i.e. why is the graph curved outward (concave)?

e. Suppose a new technology was increasing the efficiency of wheat production, with no application to missile production. Illustrate on the above graph how we would represent this change in production possibilities.

f. Suppose that a drought resulted in a 50% reduction in wheat output. Redraw the original Production Possibility Frontier graph and illustrate how this change would be represented.

g. Suppose a "baby-boom" generation comes of working age all at one time and work equally well in wheat production and missile production. Redraw the original Production Possibility Frontier graph and illustrate how this change would be represented.

h. Suppose this society enters a war. Workers are pulled out of producing wheat and instead are used to produce guns. Redraw the original Production Possibility Frontier graph and illustrate how this change would be represented.

2. Graph the trade-off between salmon and timber. Illustrate and explain the Law of Decreasing Returns.

3. Graph the trade-off between salmon and timber. Illustrate and explain the Law of Increasing Marginal Costs.

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