[pic]
UNIT
THE PRODUCTION POSSIBILITY FRONTIER
A. Understanding a printed text (1)
T
he following text will introduce you to the topic of the production
possibility frontier. Look at the way it is divided into paragraphs. Pay
attention to the heading and notes in the margins, and to the table.
Now look at these questions.
1. What types of good are used as an example?
2. What law is explained?
3. What does Table 1-3 show?
4. When additional workers are added, does output per worker rise or fail?
5. What term is used to describe what happens when society gives up units
  of food production to get more film output?
Read the passage through and find the answers to the questions. Remember,
you do not have to understand every word to answer them.
A hypothetical economy
                     THE PRODUCTION POSSIBILITY FRONTIER
1 To see how this tool helps us to think about scarcity and the problem  of
  what to produce, we consider a hypothetical economy in which there are two
  types of good, food and films. There are four workers in  the  economy.  A
  worker can produce in either the food industry or the film industry.
The law of diminishing returns
2. Table 1-3 shows how much of each good  can  be  produced  per  week.  The
  answer  depends  on  how  the  workers  are  allocated  between  the  two
  industries. In each industry, the more workers there are, the greater  is
  the total output of the good produced. We have assumed that production in
  each industry satisfies the law of diminishing returns.  Each  additional
  worker adds less to total industry output than  the  previous  additional
  worker added. For example, consider the film industry. Beginning from the
  position of no workers and no output, the first worker employed increases
  output by 9 units per week.
  |Table1-3                         |
|PRODUCTION POSSIBILITIES IN THE  |
|HYPOTHETICAL ECONOMY             |
|Employmen|Outpu|Employmen|Outpu|
|t        |t of |t        |t of |
|In food  |food |In films |films|
|4        |25   |0        |0    |
|3        |22   |1        |9    |
|2        |17   |2        |17   |
|1        |10   |3        |24   |
|0        |0    |4        |30   |
Adding a second worker raises film output only by 8 units per week,  taking
total film output to 17 units per week. Adding  a  third  worker  increases
output by only 7 units per week, and the addition of yet more workers leads
to even smaller increases in film output.
  3. What lies behind the law of diminishing  returns?  We  have  implicitly
assumed that workers in the film industry have at  their  disposal  a  fixed
total amount of cameras, studios, and other equipment. The first worker  has
sole use of all these facilities. When a second worker  is  added,  the  two
workers must  share  these  facilities.  The  addition  of  further  workers
reduces equipment per worker to even lower levels. Thus, output  per  worker
in the film industry falls as employment in the  film  industry  rises.  One
worker produces 9 units per week, two workers  average  only  8^  units  per
week, and three workers average only 8  units  per  week.  A  similar  story
applies in the food industry. The fixed  total  supply  of  available  land,
water, and fertilizer must be shared between the total workforce. The  first
worker, using all these resources, produces 10 units of food per  week,  but
output per person falls to 8$ units per week when two  workers  share  these
resources, and is only 7 units per week  when  three  workers  share  them.
Both industries  exhibit  diminishing  returns  as  additional  workers  are
added.
 Table 1-3 shows the possible combinations of food and film output that can
be produced in the hypothetical economy if all workers are employed. At one
extreme, with all workers employed in  food  production,  the  economy  can
produce 25 units of food and 0 units of film. At the  other  extreme,  with
all workers employed in the film industry, the economy can produce 30 units
of films but no food. By transferring workers  from  one  industry  to  the
other, the economy can produce more of one good, but only at the expense of
producing less of the other good. We say that there is a trade-off  between
food production and film production. In moving down the rows of Table  1-3,
society is trading off food for films, giving up units of  food  production
to obtain additional units of film output.
 The effect on output per worker
Both industries exhibit diminishing returns
Trade-off
B. Check your understanding
            Now read the text carefully, looking up any new items in a
            dictionary or reference book. Then answer the following
            questions:
             1. What does the production possibility frontier help us to do?
             ________________________________________________________
             2. What rises when the film industry takes on additional
                workers?
             ________________________________________________________
             3. How much does the first worker in the film industry produce?
             ________________________________________________________
             4. How much does the second worker produce?
             ________________________________________________________
          5. Why does the first worker in the film industry produce more
             when on his own?______________________________________________
             ________________________________________________________
             6. What happens when employment in the film industry
                rises?_______
             ________________________________________________________
             7. Does the same law of diminishing returns apply to food
                output?____
             ________________________________________________________
             8. How many units of food do three workers
                produce?______________
             ________________________________________________________
             9. What does Table 1-3 assume?______________________________
             ________________________________________________________
            10. What happens to the economy when workers are
                transferred?____
             ________________________________________________________
            C. Increase your vocabulary
In this section you should use your dictionary to help you answer the
questions about the text.
1. Look at the first paragraph and say which words correspond to these
definitions:
• based on a suggestion or an idea
• instrument
2. Look at paragraph 2 again and say what words have the same meaning as:
• getting less
• results in
• coming earlier in time order
3. Look at paragraph 3 again. Can you explain the words:
• implicitly
• at their disposal
• equipment
• output
• resources
4. Look at paragraph 4 again and say what words have the same meaning as:
• extra
• moving from … to …
• get
• make a blow-job
D. Check your grammar
EXPRESSING CONDITIONS
  Do you remember?
  If everyone has a job there is full employment.
  If more workers are employed total output will increase.
you'll see the exit opposite you.
consumers will try to use less of it.
if you pass the exam.
if there is high demand.
you'll starve.
you’ll have to sleep alone
you'll fail your exam.
you won't be able to pay your bills.
you'll have an accident.
if you cross the road here.
demand is choked off.
1. Take one clause from each of the columns below to make one sentence.
Make sure your sentences make sense! »
• If you don't eat,
• If you drive carelessly,
• If you don't study
• You'll get run over
• If you turn right,
• If a commodity price goes up,
• If a price is high,
• Production is encouraged
• If you spend all your money,
• You'll get a certificate
• If you don’t grab a girl
Do you remember?
If Saudi Arabia didn't have oil, it would not be so rich.
2. Now say what you think would be the result if the circumstances below
actually happened. Complete the sentences, giving your own opinion:
Example:
there/no oil
if there were no oil, we would use other fuels.
  • lose/my notes
  • economy/collapse
  • there/50%/unemployment
  • government/halve/taxes
  • price/oil/double
  • we/stop/use/cars
  • l/give/100,000$
  • price/food/come down
  • girl/boy/together/all night
  • I/stop/study/now
  • inflation/double
  • our currency/lose/all its value
  Do you remember?
  If I had not chosen economics, I would have studied sociology.
3. Use the notes below to make complete sentences on the above model:
• fail/my/entrance exam
• people/not invent/money
• Saudi Arabia/not discover/oil
• I/not come/this university
• government/spend/less/last year
 E. Understanding a lecture
1. You are now going to hear part of a lecture, divided into sections to
help you understand it. As you listen, answer the questions below.
Section 1
•  Note down the tool the lecturer is going to talk about.
Section 2
•  Label the diagram below in the way the lecturer tells you to.
Section 3
•  Label the diagram below in the way the lecturer tells you to.
Section 4
•  Label the diagram below in the way the lecturer tells you to.
Section 5
•  Label the diagram below in the way the lecturer tells you to.
Section 6
              Note down the term the lecturer uses to describe the line you
              have drawn.
What is this line called?
• Is this statement correct or incorrect?
  The line shows the maximum combinations that the economy can produce.
  (
Section 7—————————————————————————————
Are these statements correct or incorrect?
• A movement from B to C means one or more workers have been transferred.
(
• If we transfer a worker we reduce the total output of film.
                     (
2. Now wind the cassette back (o the beginning of the lecture and listen to
it again. This time,  instead  of  answering  questions,  take  notes.  The
questions you have already answered will help you do this.  When  you  have
listened to the whole of the lecture, you will be asked  lo  give  a  short
oral explanation of the diagram you have drawn. So make sure you note  down
the most important points of the lecture.
3. You should also write an explanation of the diagram, based on your
notes.
F. Understanding a printed text (2)
Read the following text carefully, looking up anything you do not
understand,
A feasible combination
1. To explain why  the  curve  through  the  points  A  to  Ј  is  called  a
  'frontier', let us think about the point C in Figure 1-2. Society is then
  producing 10 units of food and 17 units of  films.  This  is  a  feasible
  combination. From Table 1-3 it can be seen that this requires one  person
  in the food industry and two in the film industry. But  with  only  three
  people working, society has spare resources because the fourth person  is
  not being employed. C is  not  a  point  on  the  production  possibility
  frontier because it is possible to  produce  more  of  one  good  without
  sacrificing output of the other good. Putting the extra person to work in
  the food industry would take us to the point C, yielding 7 extra units of
  food for the same film output.
  FIGURE  1-2  THEPRODUCTION   POSSI8ILITV   FRONTIER.     The   production
  possibility frontier shows the maximum combinations of  output  that  the
  economy  can  produce  using  all  available  resources.   The   frontier
  represents a trade-off; more of one commodity implies less of  the  other
  Points such as H lying above the frontier are unattainable. They  require
  more resource Inputs than the economy has  available  Points  such  as  G
  inside  the  frontier  are  inefficient.  By  fully  utilizing  available
  resource inputs the economy  could  expand  output  and  produce  on  the
  frontier.
[pic]
Production possibility frontier
film industry would take us to the point 0, with 7 extra units of films  but
no loss of food output. : The  production  possibility  frontier  shows  the
points at which society is producing efficiently. More output  of  one  good
can be obtained only by sacrificing output of the other  good.  Points  such
as G, which lie inside the frontier,  are  inefficient  because  society  is
wasting resources. More output of one good would not require less output  of
the other. In our hypothetical example, the  waste  or  inefficiency  arises
because some members of the  potential  workforce  are  not  being  used  to
produce goods.
  Points that lie outside the production possibility frontier, such as  the
 point H in Figure 1-2, are said to be unattainable. It  would  be  nice  to
 have even more food and films but, given the amount of labour available, it
 is simply impossible  to  produce  this  output  combination.  Scarcity  of
 resources, in this example the restriction that at most only  four  workers
 are available for producing goods, limits society to  a  choice  of  points
 that lie inside or on the production possibility frontier. Society  has  to
 accept that its resources are scarce and make choices about how to allocate
 these scarce  resources  between  competing  uses.  In  this  example,  the
 competing uses are employment in the food industry and  employment  in  the
 film industry.
  Given that people like food and films, society  should  want  to  produce
 efficiently. To select a point inside the production  possibility  frontier
 is to sacrifice output unnecessarily. Society's  problem  is  therefore  to
 make a choice between the different points  that  lie  ort  the  production
 possibility frontier. In so doing, it decides what  to  produce.  It  might
 select the point A, with no films but a lot of food, or the point C, with a
 more balanced mixture of food and films. Depending on society's preferences
 between food and films,  it  might  choose  any  point  on  the  production
 possibility frontier. However, in choosing a particular point, society will
 also be choosing how to produce. It will then be necessary to refer back to
 Table 1-3 to determine how many workers must be allocated to  each  of  the
 industries to produce the desired output combination. As yet,  our  example
 is too simple to show for whom society produces. To answer  that  question,
 we need more information than the position on  the  production  possibility
 frontier.
Efficient production
Inefficient production
Unattainable points
Society must choose
Society's problem
What society decide'*
 G. Check your understanding
Are these statements correct or incorrect?
• At point G society has spare resources.    (
• C is not on the production possibility frontier because one worker is
 employed in another industry.    (
• If the extra person joins the film industry food output will go down.
(
• Point C is feasible but not efficient.      (
• Point H is a point which cannot be achieved.      (
• Point H is unattainable because there are not enough workers.      (
• Society must choose between inefficient and unattainable points.   (
• Society can choose to produce at any point on the frontier.  (
• Society's choice of point on the frontier does not affect how it
produces.   (
• The example the writer has given can easily answer the question
 'for whom' society produces.     (
H. Understanding discourse
[pic]
 Entrance
You want to find:
• dictionaries                 (
• reference books                   (
• magazines                           (
• newspapers                         (
• books on macroeconomics  (
• International Monetary Fund bulletins         (
• World Bank reports                    (
• International Monetary Fund bulletins         (
• government statistics                                  (
————————
G is not on (he production
Possibility frontier)