Group assignment presentation 1

Group 6:
Nguyễn Thảo Duyên
Lê Thị Ngân
Lê Thị Vân Anh
Quách Hải Hà
Lê Thị Ngọc Lan

Excesise 1: Use the following production possibilities table for war goods and
civilian goods to answer questions a to e.

PPF curve exercise 1

35
Guided missiles (in thousands)

30 30
27
25

20 21

15
12
10

0 0
0 1 2 3 4 5 6 7 8 9

Cars (in millions)

PPF curve

a, As you can see from the table, the ratio of the change in producing cars to the
change in guided missiles is 1/6, 2/9, 1/3, 2/3, respectively from E to A and you
can see in the graph that it shows convex curves which shows an increasing
opportunity costs for the production of missiles.
So there are increasing opportunity costs for the production of missiles.

b. If the economy is currently at point C:

- One million more cars would cost 4.5 thousands guided missiles
(2 millions cars = 9 thousands guided missiles).
Moving from point C to D, table shows that we can get 2 millions more cars (6-4)
by sacrificing 9 thousands guided missiles (21-12)—that is, we get one million
more cars by sacrificing 4.5 thousands guided missiles.
- One thousands more guided missiles would cost 1/3 millions cars (6 thousands
guided missiles = 2 millions cars )
Moving from point C to B, Table shows that we can get 6 thousands guided
missiles (27-21) by sacrificing 2 millions cars (4-2)—that is, we get one thousands
more guided missiles by sacrificing 1/3 millions cars.

c, Label a point G inside the curve of the graph which indicates that the method of
using resourses is inefficient or the economy’s resources are not fully employed.

d, Point H indicates that producing outside the curve is not possible. To reach a
level of production beyond an existing curve would require expansion of the curve
by increasing the quantity or quality of resources, or by advancing technology.

e, Suppose improvement occurs in the technology of producing guided missiles but

not in the production of cars.
 PPF curve when improving technology for only missles
45
Guided missiles (in thousands)

40
35
30
25
20
15
10
5
0
0 1 2 3 4 5 6 7 8 9

Cars (in millions)

PPF curve New PPF curve

PPF curve when improving technology for both products

45
Guided missiles (in thousands)

40
35
30
25
20
15
10
5
0
0 1 2 3 4 5 6 7 8 9 10

Cars (in millions)

PPF curve New PPF curve

Exercise 2. Assume that a simple economy has 2 industries which produce wheat
and cloths. Resources to produce these products are scarce and used effectively.
The following table represents the possible combinations of output between wheat
and cloths that this economy produces in a given year.
a. Draw the production possibility frontier (PPF) curve for this economy
b. If output of wheat and cloths are 9 tons of wheat and 4000 set of cloths, what do
you think about productive efficiency of this economy?
c. Can this economy produce 20 tons of wheat and 10 000 set of cloths?
d. Calculate opportunity costs of producing wheat and cloths?

a,

PPF curve excersise 2

30
Output of wheat (tons)

25 25
20
20 20
15
15 15

10
9
5

0 0
0 2 4 6 8 10 12

Output of cloths (1000 set)

PPF curve PPF curve2

b. If output of wheat and cloths are 9 tons of wheat and 4000 set of cloths,
productive efficiency of this economy is inefficient.
At point G represents a feasible combination of both goods but it is inefficient
because at point G, all resources are not fully utilized.
c. This economy cannot produce 20 tons of wheat and 10000 set of cloths.
So here graphically, we can see that point H are on the outside of PPF which
means this economy has enough resources and technology to give there.
d.
* Opportunity cost for cloths:
- A to B
The opportunity cost of 4 cloths is 5 wheat so 1 cloth= 5/4 wheat
- B to C
The opportunity cost of 3 cloths is 5 wheat so 1 cloth= 5/3 wheat
- C to D
The opportunity cost of 2 cloths is 6 wheat so 1 cloth = 3 wheat
- D to E
The opportunity cost of 1 cloth is 9 wheat so 1 cloth =9 wheat

* Opportunity costs for wheat:

- A to B:
The opportunity cost of 5 wheat is 4 cloths so 1 wheat= 4/5 cloths
- B to C
The opportunity cost of 5 wheat is 3 cloths so 1 wheat= 3/5 cloth
- C to D
The opportunity cost of 6 wheat is 2 cloths so 1 wheat= 1/3 cloths
- D to E
The opportunity cost of 9 wheat is 1 cloth so 1 wheat= 1/9 cloths