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The diagram refers to production possibility frontiers for a country that produces capital goods and consumer goods - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 1
Question 1
The diagram refers to production possibility frontiers for a country that produces capital goods and consumer goods. Originally, the economy has a production possib... show full transcript
Worked Solution & Example Answer:The diagram refers to production possibility frontiers for a country that produces capital goods and consumer goods - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 1
Step 1
Calculate the original opportunity cost of producing 50 capital goods
Answer
To find the original opportunity cost, we need to observe the output levels of consumer goods on the frontier represented by the line XY. First, locate point U, where the output of consumer goods is 100 when producing 50 capital goods. The previous production level for 50 capital goods would have been at point V, where the output of consumer goods was 120.
Thus, the original opportunity cost of producing 50 capital goods is calculated as follows:
Original Opportunity Cost = Output at V - Output at U = 120 - 100 = 20 consumer goods.
Step 2
Calculate the new opportunity cost of producing 50 capital goods
Answer
Upon moving to line XZ and operating at point U, we observe that the output of consumer goods now is 140 when producing the same 50 capital goods. Therefore, the new opportunity cost is derived from:
New Opportunity Cost = Output at W - Output at U = 170 - 140 = 30 consumer goods.
Step 3
Which one of the following was the most likely cause of the movement in the production possibility frontier from XY to XZ?
Answer
The correct answer is D: A technological improvement in the production of capital goods. This is because improvements in technology generally allow for more efficient production methods, shifting the PPF outward and increasing potential output.
Step 4
Explain one characteristic of the economy at position W
Answer
Position W represents an inefficient allocation of resources. This means that the economy is not utilizing all of its resources effectively, resulting in potential production that is not being achieved. It indicates that the economy could improve its output of either consumer goods or capital goods by employing the unavailable resources.