Suppose that a simple society has an economy with only one resource, labor. Labor can be used to produce only two commodities—X, a necessity good (food), and Y, a luxury good (music and merriment). Suppose that the labor force consists of 100 workers. One laborer can produce either 5 units of necessity per month (by hunting and gathering) or 10 units of luxury per month (by writing songs, playing the guitar, dancing, and so on).

a. On a graph, draw the economy’s ppf. Where does the ppf intersect the Y-axis? Where does it intersect the X-axis? What meaning do those points have?

b. Suppose the economy produced at a point inside the ppf.

Give at least two reasons why this could occur. What could be done to move the economy to a point on the ppf?

c. Suppose you succeeded in lifting your economy to a point on its ppf. What point would you choose? How might your small society decide the point at which it wanted to be?

d. Once you have chosen a point on the ppf, you still need to decide how your society’s production will be divided.

If you were a dictator, how would you decide? What would happen if you left product distribution to the free market?

*8. Match each diagram in Figure 1 with its description here.

Assume that the economy is producing or attempting to produce at point A and that most members of society like meat and not fish. Some descriptions apply to more than one diagram, and some diagrams have more than one description.

a. Inefficient production of meat and fish

b. Productive efficiency

c. An inefficient mix of output These figures assume that a certain number of previously produced ovens are available in the current period for baking bread.

a. Using the data in the table, graph the ppf (with ovens on the vertical axis).

b. Does the principle of “increasing opportunity cost” hold in this nation? Explain briefly. (Hint: What happens to the opportunity cost of bread—measured in number of ovens—

as bread production increases?)

c. If this country chooses to produce both ovens and bread, what will happen to the ppf over time? Why?

d. Technological advances in the production of meat and fish

e. The law of increasing opportunity cost

f. An impossible combination of meat and fish