(BASED ON THE PRODUCTION POSSIBILITY FRONTIER)

The data below describe the current production possibilities for an economy that produces two goods: Livestock Products and Aquaculture products

Quantities that can be produced per month with the currently available resources

Aquaculture products

6000

5900

5700

5400

5200

4100

Livestock products

0

100

200

300

350

500

Label point

A

B

C

D

E

F

Required:

(a)Explain the existence of opportunity costs in this situation.

(b)Plot the PPF. Put Livestock goods on the vertical axis; Aquaculture on the horizontal axis. Label the points. Be sure each axis is to scale. Scales can differ between axes.

(c)"Your PPF slopes down because of tradeoffs." Explain that sentence in words that make sense to someone not taking economics.

(d)An economic advisor suggests that the government offer tax incentives to increase the amount of aquaculture in the economy. What is one cost of shifting resources from the production of livestock goods to the production of aquaculture goods?

(e)To a manager in either the private sector or the public sector, what is the significance of having a good understanding of the PPF?