1. Consider the graph below and assume the graph represents the production possibilities associated with Good 1 and Good 2. You’ll notice 7 different points identified on this graph as well. Please refer to these points when answering the questions below.
a. Which point(s), if any, represent an efficient use of factors?
b. Which point(s), if any, represent an inefficient use of factors?
c. If there is an increase in (relative) demand for good 2 (i.e. where people are willing to give up units of good 1 in order to get more of good 2), then this country will move from one point on the graph to another point. Give all possible combinations of points (e.g. G to F, D to G, etc.) that could be used to explain how this change affects the PPC.
2. Explain how each of the following events will affect the production possibilities curve for Country M, a country that produces lemonade (a drink made from lemons) and limeade (a drink made from limes).