Question

The island of Boa-Waku produces only two items: sugar cane and carved utensils. Over the past year, a technological advance has increased the potential production of carved utensils while sugar cane possibilities have remained constant. How would the production possibilities curve change?

Short answer

The production possibilities curve (PPC) for the island of Boa-Waku would shift upwards and outward due to the technological advance in carved utensils production while sugar cane production remains constant. This indicates that Boa-Waku can now produce more carved utensils without sacrificing sugar cane production.

Step-by-step solution

Understanding the Production Possibilities Curve (PPC)

A Production Possibilities Curve is a graphical representation that shows the different combinations of two goods that can be produced by an economy, given its available resources and technology. In this case, the two goods are sugar cane and carved utensils. The curve shows the trade-offs between producing more of one good and less of the other, assuming efficient utilization of resources. Points on the curve represent the maximum amount of both goods that can be produced, given the resources available.

Identifying the initial PPC for Boa-Waku

To understand how the Production Possibilities Curve changes, we must first identify its initial position. Let's assume that the initial PPC for Boa-Waku is represented by a downward-sloping convex curve with sugar cane production on the horizontal axis (x-axis) and carved utensils production on the vertical axis (y-axis). Now, this curve represents all possible combinations of sugar cane and carved utensils production that Boa-Waku can achieve with its given resources and technology.

Analyzing the impact of the technological advance on carved utensils production

The exercise mentioned that over the past year, a technological advance increased the potential production of carved utensils while sugar cane production capabilities remained constant. With this new technology, Boa-Waku can now produce more carved utensils with the same amount of resources. This increase in productivity for carved utensils affects the PPC.

Shift in the Production Possibilities Curve (PPC)

As a result of the technological advance in carved utensils production, the PPC will shift outward and upwards, showing that Boa-Waku can now produce more carved utensils with the same amount of resources and without affecting sugar cane production. The new PPC will still be a downward-sloping convex curve. However, it will be higher than the initial PPC curve along the vertical axis (carved utensils axis), showing the increase in potential production of carved utensils. So, in conclusion, the production possibilities curve for the island of Boa-Waku would change by shifting upwards due to the technological advance in carved utensils production, while sugar cane production capabilities remained constant. The new PPC shows that Boa-Waku can now produce more carved utensils without having to sacrifice sugar cane production.

Key concepts

Opportunity Cost

In economics, the concept of opportunity cost is central to understanding decision-making and resource allocation. At its core, opportunity cost is the value of the next best alternative foregone as the result of making a decision. For the island of Boa-Waku, which produces only sugar cane and carved utensils, the opportunity cost of producing more of one is the amount of the other that must be given up.

When visualized on a Production Possibilities Curve (PPC), any movement along the curve demonstrates an opportunity cost. If Boa-Waku decides to allocate more resources to produce additional units of carved utensils, it will have to produce fewer sugar canes if it is operating on the PPC curve. Similarly, if Boa-Waku has technological advancements in carved utensils, the PPC shifts, indicating that more utensils can be produced with the same resources and less opportunity cost for each additional unit.

Economic Efficiency

The idea of economic efficiency arises when resources are optimally allocated to serve the needs and desires of a population. It implies that goods are being produced in such a way that no additional output can be gained without increasing the amount of inputs or by reallocating resources to produce more of one good without less of another.

For Boa-Waku's economy, economic efficiency is indicated by points on the PPC, where the island is utilizing all available resources and technology to their fullest potential. Points within the curve indicate inefficiency, as more of both goods could be produced. Technological advancements result in an outward shift of the PPC, indicative of an increase in economic efficiency for the enhanced good. Boa-Waku can now produce more carved utensils without sacrificing sugar cane production, enhancing the overall efficiency of the economy.

Technological Advancement in Production

Technological progress is a significant factor in increasing a country's production capacity. For Boa-Waku, the technological advancement in the production of carved utensils allows the island to produce more utensils without needing more resources. It is as if the island has unlocked a new level of productive ability, making its economy more dynamic and potentially richer.

An outward shift in the PPC reflects this improvement, which can occur due to different factors including improved production techniques, better training, or the introduction of innovative equipment. Such advancements have the dual effect of potentially reducing opportunity costs and increasing economic efficiency since they enable the production of more goods with the same amount of input. Boa-Waku being able to produce more carved utensils after the technological shift provides a tangible example of how technological progress empowers an economy to exceed its previous limitations.