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Difficulty: MediumProduction Possibility Curve (PPC)

A developing country produces only two commodities: Cocoa and Steel. If a technical innovation occurs that significantly improves agricultural yields for Cocoa without affecting Steel production efficiency, which of the following best describes the structural change in the nation's Production Possibility Curve (PPC)?

  1. The curve rotates outward along the Cocoa axis while remaining anchored at the original maximum limit on the Steel axis.Answer
  2. B
    The entire curve shifts outward parallel to its original position across both the Cocoa and Steel axes.
  3. C
    There is a movement downward along the existing curve from Steel production toward Cocoa production.
  4. D
    The monetary price of Cocoa falls, causing the opportunity cost of Steel to decrease to zero.

Answer

The Production Possibility Curve rotates outward along the Cocoa axis while maintaining its original intercept on the Steel axis.
When technological progress benefits only one specific sector (in this case, Cocoa), the economy's maximum potential capacity to produce that single good increases, while the maximum potential output for the uninfluenced sector (Steel) remains constant. Graphically, this causes the Production Possibility Curve to pivot or rotate outward along the Cocoa axis while remaining attached to the same point on the Steel axis.

Step-by-Step Solution

1
Analyze the scope of the technological advancement.
The innovation specifically enhances productivity in Cocoa production while leaving Steel technology unchanged.
Targeted technology increases maximum potential output for only one commodity.
2
Determine the impact on the boundary endpoints (axis intercepts) of the PPC.
The maximum obtainable amount of Cocoa increases, moving its intercept outward, while the Steel intercept stays constant.
A PPC intercept represents maximum potential output when all resources are dedicated to producing a single good.
3
Differentiate between a full curve shift, a rotation, and a movement along the curve.
An asymmetric increase in capacity results in an outward rotation (pivot) rather than a parallel shift or a movement along the static curve.
Unbalanced growth pivots the curve from the axis of the unaffected commodity.

Key Concept

Asymmetric Shifts and Rotations of the Production Possibility Curve
Estimated Time:1m 15s
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Topics

Production Possibility Curve (PPC)

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