Suppose the fictional country of Yosemite produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for millet, an agricultural good, and electric generators, a capital good.
Drag the production possibilities frontier (PPF) on the graph to show the effects of a long drought that reduces the amount of water available for farmers to use for irrigation.
Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther.
Solution and Explanation
Because of the drought, fewer bushels of millet can be produced on any given amount of land; however, there is no reason to think that the maximum amount of electric generators that can be produced would change.
For instance, when you look at the vertical axis, you see that if Yosemite produces zero bushels of millet, it can initially produce a maximum of 150,000 electric generators per year. Because the drought does not affect the number of electric generators Yosemite can produce, you should have left the point at 150,000 electric generators per year.
Similarly, when you look at the horizontal axis, you see that if Yosemite produces zero electric generators, it can initially produce a maximum of 240 million bushels of millet per year. Because the drought decreases the amount of millet Yosemite can produce, you should have moved the point to 160 million bushels of millet per year.