Question

In 2017, Nepal’s production of rice and machinery was published by the Nepal Bureau of Statistics (NBS) as indicated by the table below:

Production in Nepal
Position

P
Q
R
S
T
U
V
W
X
Y
Z
Rice (1000 tons)
0
10
26
37
45
50
55
59
66
77
80
Machinery (units)
90
89
85
80
75
70
65
60
50
30
0














Based on the table above, a production possibility frontier (PPF) for Nepal can be plotted as below:

Use the NBS production table and production possibility frontier to answer the following questions:
A. Name positions B, V and D. Also, as indicated in the table, supposing Nepal is operating at level T, what is the opportunity cost of producing 10,000 more tons of rice?​​​​​​​​​(3 marks)

B. Use the graph below to answer the questions that follow:


B1: Suppose Nepal begins to manufacture fertilizers. Explain the impact of the discovery of fertilizers on Nepal’s economy using one of the PPF above.
(2 marks)
B2: Also, supposing there is a discovery of steel in Nepal, explain the impact of steel on the economy of Nepal using one of the PPF above. (2 marks)
B3: Finally, the Minister of Finance in Nepal advices the World Bank that in order to increase rice production and machinery, each sector requires USD 50 billion, or a total of 100 billion. This 100 billion is made available by the World Bank. Explain the impact of these 100 billion budgetary allocations to the economy of Nepal. Use one of the PPF above. ​​(3 marks)

Answer 1

The graph is attached

Answer:

A)

Position B: This position is the point of inefficiency, because B lies inside the production possibility frontier (PPF). At this level, resources are not satisfied.

Position V: The point V on this PPF, can be said to be a point of fuller utilization.

Position D: The point D is a point over the PPF. At this point level of production is unattainable or unfeasible.

ii) Opportunity cost of producing 10000 more tons of rice is 10 units of machinery.

In this case, when 10,000 more tons of rice are produced, there would be a movement from point T to V. The production of rice would increase by 10,000 units and the machinery production would be reduced by 10 units.

B1) Production of fertilizers would lead to an increase in the production of rice because fertilizers helps farm produce. On the graph there would be an outward rotation of PPF on the x axis. This would be PPF2, knowing that PPF1 is the level of origin.

B2) The discovery of steel would lead to the availability of more raw materials needed for the machinery to produce rice. Here, on the Y axis, which is the machinery axis, there would be a rotation from PPF1 to PPF3.

B3) When the $100 billion is given to them, this would lead to an increase in overall production level, as they may decide to higher more labour or even purchase enough inputs. Here, there would be a shift from PPF1 to PPF4.