The table to the right describes two production

possibilities frontiers. Each PPF looks

"kinked", so that it is bunch of straight lines

that connect the dots given in the table. This

means that it has a constant slope between two

points, and changes slope at each point. It

Use the information there to answer the

following questions.

a. Draw the PPF described by technology #1 (put good 2 on the vertical axis). Illustrate and label

the optimal production of each good for this economy under the following two price systems:

1

a. Price of good 1 = $15, price of good 2 = $30

b. Price of good 1 = $50, price of good 2 = $10

b. There is a technological improvement that shifts the economy to a new PPF, described by

technology 2 in the table above. Along with the technological shift, prices change so that the

price of good 1 is now $30, and the price of good 2 remains $10. All in the same set of axes,

draw, i) the old PPF, given technology 1, ii) the old market production choice (at the prices of P

1

= 50, P

2

=10), iii) the new PPF, given technology 2, and iv) the new market production choice

(at the prices of P

1

= 30, P

2

=10). Are the citizens of the economy clearly "better off" after the

shift? Why or why not?

c. Consider a planned economy using the "old" technology #1, and producing at the same "old"

level as in question 2 (i.e., those from part (1ii), where P

1

=$50, and P

2

=$10). This is the best

planned outcome given this technology - the community indifference curve is known, and gives

the same outcome as in markets.