Question

Draw a Production Possibilities Graph for the Ford Motor Co. using the following information:

A B C D E F G
Trucks 0 20 28 35 40 43 45
Cars 54 52 49 43 35 25 0
A. What are the consequences of Ford producing at combination A? Combination G? In reality, are
either combination desirable? Why? Why not?
B. Plot the combination with 30 cars and 40 trucks and label it “Y.” Plot the combination with 40
cars and 50 trucks and label it “X.” Explain what is happening at these points.
C. Explain, with examples, how your graph shows 5 concepts: opportunity costs, efficiency,
unemployment, the law of increasing opportunity costs, and economic growth.

Answer 1

A. In terms of Consequences of Ford's Production:

• The Combination A (54 cars, 0 trucks): Ford's production focus solely on cars at the expense of meeting truck demand, making it an undesirable and unrealistic choice.
• The Combination G (0 cars, 45 trucks): Ford's exclusive truck production neglects car demand, rendering it undesirable and impractical.

B. In terms of Plotting Combinations Y and X:

• The Combination Y (30 cars, 40 trucks) Efficiently on the production possibilities curve, Ford can simultaneously produce 30 cars and 40 trucks without resource underutilization or overuse.
• The Combination X (40 cars, 50 trucks) is beyond the curve, this unattainable combination implies inefficiency, as Ford cannot produce 40 cars and 50 trucks simultaneously with its current resources.

C. In terms of Graph Concepts:

1. Opportunity Costs: Shown by the trade-offs between car and truck production, reflecting the resources diverted from one to the other.
2. Efficiency: Points on the curve depict optimal resource use, maximizing output within constraints.
3. Unemployment: Points inside the curve signal inefficiency and underutilization of resources, leading to potential unemployment.
4. Law of Increasing Opportunity Costs: As Ford shifts production between cars and trucks, the rising opportunity cost is evident in the curve's slope.
5. Economic Growth: Points outside the curve represent growth potential, attainable through enhanced efficiency, technological advancements, or increased resources.