Question

A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals

to clear some of Sherwood’s forest and grow corn, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible combinations of economic output and environmental protection.

a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the number of trees, and the quantity of economic output, measured in corn, on the vertical axis.

b. Which choices display productive efficiency? How can you tell?

c. Which choices show allocative efficiency? How can you tell?

d. In the choice between T and R, decide which one is better. Why?

e. In the choice between T and S, can you say which one is better, and why?

f. If you had to guess, which choice would you think is more likely to represent a command-and-control

environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice Q or S? Why?

Short answer

The following answers are based on the production possibility frontier.

Step-by-step solution

Production Possibility Frontier : 

When the availability of resources for both products is fixed, it is described as a curve illustrating the many possible amounts that two independent things may be produced.

(a) Explanation : 

The following is a production possibility frontier with environmental quality on the horizontal axis, measured in trees, and amount of economic output, measured in corn, on the vertical axis:

(b) Explanation : 

Points P,R, and S, depending on the options provided, illustrate the productive efficiency. As a result, several options are accessible on the horizon of manufacturing possibilities.

(c) Explanation : 

The preferences influence the allocative efficiency. As we lack knowledge on the desires of the society, we can't say anything about allocative efficiency in this scenario.

(d) Explanation : 

When deciding between points T and R, point R should be favored because it has more corn and trees. As a result, this concept clarifies why productive efficiency is advantageous. When contrasted to the PPF's options, it signifies more of one or both of the items.

(e) Explanation : 

When deciding between T and S, it's tough to declare which is the superior option. The point S is on the PPF whereas the point T is not, although this merely pertains to the issue of productive efficiency. If a community places a high value on economic production while placing a low value on trees, T will be chosen over S. The opposite is likewise true, resulting in the selection of S. This topic is difficult to address in the absence of knowledge about society's preferences to measure allocative efficiency.

(f) Explanation : 

More environmental protection with the same level of production, greater output with the same level of environmental protection, or both environmental protection and output as more are all possible with market-oriented policies. As a result, an option inside the PPF, such as point Q, is more likely to reflect a command and control policy requirement than a decision on the PPF's border, such as S.