Question

The importance of the production possibilities model is that it shows the different combinations of goods and services that society can produce efficiently, ____, in a fully employed economy, and given a fixed amount of ____.

Answer 1

The production possibilities model is essential as it demonstrates the different combinations of two types of goods that an economy can efficiently produce, given its limited resources and the required trade-offs between them.

Step-by-step explanation:

The importance of the production possibilities model is that it shows the different combinations of goods and services that society can produce efficiently, with trade-offs, in a fully employed economy, and given a fixed amount of resources.

An economy's factors of production, such as labor, land, capital, and technology, are scarce, and thus, there are limits to the quantities of goods and services it can produce. The production possibilities curve (PPC) or frontier is a graphical representation of these limits, showing the maximum possible combinations of two types of goods, such as healthcare and education, that an economy can produce with its current resources.

For example, Yemen, which has a fixed amount of resources, uses the PPC to illustrate the tough choices and important trade-offs it must consider between producing food and housing. Any point on this curve represents an efficient combination of the two goods, and producing more of one requires sacrificing some of the other, highlighting the concept of opportunity cost.