Production Possibilities drawing worksheet

Production Possibilities drawing worksheet: answer key

1. 1. Automation Lifts Both Industries: frontier shifts right

   Technology is one of the determinants of an economy's productive capacity. An automation technology that raises output per worker in both industries lets Kestrel produce more of each good using the resources it already has, so the maximum attainable quantity of both goods increases and the entire frontier shifts outward. The labor force and the stock of natural resources are unchanged, so the gain comes entirely from getting more output out of the same resources rather than from acquiring new ones.

   Kestrel's maximum attainable output of both goods rises, and combinations that were previously unattainable can now be produced.

   Watch for: A tempting wrong answer moves the curve inward, on the reasoning that automation replaces workers and leaves the country producing less. Automation here shrinks no resource: the labor force is stated to be unchanged, and each worker now produces more, so the maximum output of both goods is larger and the curve moves outward, not inward.

2. 2. Flood Wipes Out Machinery: frontier shifts left

   An economy's capital stock is one of the resources that set how much it can produce when everything it owns is put to work. Losing much of Sarnhold's machinery and warehouse equipment for good shrinks that resource, so the largest quantity of each good the country can turn out falls and the frontier shifts inward. The prompt also says the surviving resources stay fully employed, so this cannot be shown as the economy slipping to a point inside its curve; the economy's capacity itself is smaller, so the whole curve moves inward.

   Sarnhold's maximum attainable output of both goods falls, and combinations the country could produce before are no longer attainable.

   Watch for: A very common error is to leave the curve exactly where it is and mark a point inside it instead, treating the disaster as idle resources. A point inside the frontier means the resources still exist but sit unemployed. Here the machinery is gone for good, so the economy's capacity itself is smaller and only an inward shift of the frontier shows that.

3. 3. A Decade of Building Capital: frontier shifts right

   Choosing a capital-heavy combination year after year adds to the stock of machinery, tools, and factories, and that stock is itself one of the resources an economy draws on to produce. After a decade of that choice Verath holds more capital than it started with, so it can now produce more of both goods and the frontier lies beyond where it stood at the start of the decade. The labor force, natural resources, and technology are unchanged, so the entire gain comes from the capital accumulated during those years.

   Verath can now produce more capital goods and more consumer goods than it could at the start of the decade.

   Watch for: Students often answer by picking a different point on the existing curve, one weighted toward capital goods, because that is the choice Verath made each year. That movement along the curve is the choice, not its result: it only shows consumption being given up today. The capital those years produced is what raises capacity afterward, and the question asks for that later effect, which only an outward shift of the whole frontier can show.

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