An economy consists of three workers: Larry, Moe, and Curly....

An economy consists of three workers: Larry, Moe, and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; and Curly can either mow two lawns or wash one car. a. Calculate how much of each service is produced in the following scenarios, which we label $A$, B. C, and D: $\cdot$ All three spend all their time mowing lawns. (A) $\cdot$ All three spend all their time washing cars. (B) " All three spend half their time on each activity. (C) $\cdot$ Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D) b. Graph the production possibilities frontier for this economy. Using your answers to parta. identify points $A, B, C,$ and $D$ on your graph. c. Explain why the production possibilities frontier has the shape it does. d. Are any of the allocations calculated in part a inefficient? Explain.

An economy consists of three workers: Larry, Moe, and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn
or wash one car; Moe can either mow one lawn or wash two cars; and Curly can either mow two
lawns or wash one car.
a. Calculate how much of each service is produced in the following scenarios, which we label $A$,
B. C, and D:
$\cdot$ All three spend all their time mowing lawns. (A)
$\cdot$ All three spend all their time washing cars. (B)
" All three spend half their time on each activity. (C)
$\cdot$ Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D)
b. Graph the production possibilities frontier for this economy. Using your answers to parta. identify points $A, B, C,$ and $D$ on your graph.
c. Explain why the production possibilities frontier has the shape it does.
d. Are any of the allocations calculated in part a inefficient? Explain.

Key Concepts

Production Possibility Frontier

The production possibility frontier (PPF) represents all maximum production combinations of two goods that an economy can achieve given its resources and technology. It shows the trade-offs between the production of two services, illustrating how reallocating resources can lead to different outcomes while maintaining overall efficiency.

Opportunity Cost

Opportunity cost is the cost of forgoing the next best alternative when choosing one option over another. In the context of the PPF, it explains how increasing output of one good reduces the available resources to produce another, highlighting the trade-offs involved in production decisions.

Efficient Allocation

Efficient allocation refers to the use of resources in a way that maximizes production without waste. When an economy operates on its PPF, it is considered to be using its resources efficiently, as any deviation from the frontier indicates that the economy could produce more of one or both goods without sacrificing the output of the other.

Comparative Advantage and Specialization

Comparative advantage is the principle that differences in productivity imply that workers or economies can benefit by specializing in the production of goods for which they have a lower opportunity cost. Specialization, based on comparative advantage, allows for better overall efficiency and higher total output, as seen when different workers focus on the services they produce most effectively.

Trade-offs

Trade-offs involve choosing between different production alternatives due to limited resources. The PPF visually demonstrates these trade-offs by showing how increasing the production of one service necessitates reducing the production of the other, and the shape of the PPF highlights the rate at which these trade-offs occur.

Transcript

00:01 All right, here we're taking a look at production possibility frontiers, and we're working with an example where we have three workers, larry, moe, and curley.

00:08 They each work a total of 10 hours a day, and they can spend their time either mowing lawns or washing cars or they can split their time.

00:16 We're given their production possibilities here for one hour where larry can mow one lawn in an hour or wash one car.

00:23 Mo can mow one lawn or wash two cars, and curley can mow two lawns or wash one car.

00:30 So let's go ahead and figure out what these production possibilities would be for this part a right here.

00:36 Let's assume that all of their time is spent mowing lawn.

00:39 So if that's what we do, let's first take a look at larry.

00:42 So he can mow one lawn per hour.

00:44 So working 10 hours a day, that means that he could mow a total of 10 lawns.

00:48 Mo can do the same thing.

00:50 So he can mow 10 lawns in those 10 hours.

00:53 And curly can mow two lawns per hour.

00:55 So in those 10 hours, he could mow a total of 20 lawns.

00:58 So that tells us that if all of their time is devoted to mowing lawns, they could mow a total of 40 lawns.

01:06 And that means that they would be washing zero cars because no time was devoted to that.

01:11 So let's go ahead now and take a look at it if they were to spend all of their time washing cars instead.

01:17 So looking again at larry, it looks like he can wash one car per hour, so in those 10 hours he could wash a total of 10 cars.

01:23 Mo can wash two cars per hour, so in those 10 hours he could wash 20 cars.

01:28 And curley can wash one car per hour.

01:30 So that means that he could wash 10 cars.

01:32 So that tells us that they could wash a total of 40 cars in those 10 hours of all their time is devoted to it, and in which case they would mow zero lawns.

01:44 Let's now suppose that they each spend half of their time on each one.

01:48 So i'm going to go ahead and split this up here.

01:50 We're going to do our cars and our lawns.

01:56 All right, so let's say we're spending half our time.

01:58 So larry can mow one lawn per hour.

01:59 So he's spending five hours more in the lawns, which means that he can mow a total of five lawns.

02:05 And he can wash the same number of cars.

02:08 Mo can wash two cars per hour, so within those five hours, he could wash a total of 10 cars, and he can mow one lawn per hour, so in five hours he could mow five lawns.

02:23 Curly can wash one car per hour, so in five hours, he could wash five cars, and he can mow two lawns per hour.

02:33 That means that he could mow ten lawns.

02:35 So this gives us a total of 20 cars washed and 20 lawns mode.

02:44 Now let's suppose that larry spends half of his time on each activity.

02:50 Mo only washes cars and curly only mow's lawns.

02:53 So let's now, again, split this up, cars and lawns, and let's see what they can each produce or what their possibilities would be here.

03:04 So if larry spends half of his time on each, it looks like he could do five of each, so he can wash five cars and mow five lawns.

03:13 Mo only washes cars, so that tells us you can see that he can wash two cars per hour, and he has 10 hours to do that, so he can wash a total of 20 cars.

03:23 That means that he's mowing zero lawns, and curley is only mowing lawns...

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