Consider a farmer's production possibilities curve, with corn measured on the vertical axis, and soybeans on the horizontal axis. Describe the impact of each of the following on the curve:
(a) The farmer buys or rents more land.
(b) A higher yielding variety of corn seed is developed.
(c) A hailstorm wipes out half of whatever crops the farmer has planted
(d) The government raises price supports for soybeans.

Question

Quizplus · Accepted Answer

The Answer is (a) The entire curve should shift out, since more land could presumably be used to grow either crop.
(b) The vertical intercept will shift up, as greater amounts of corn can now be grown, but the amount of potential soybean crop remains unchanged.
(c) The entire curve will shift in towards the origin, though not necessarily by one-half, since the farmer may be able to work the surviving crops more intensively and thus suffer a loss in output of less than 50 percent.
(d) No effect, since it has changed neither the amount of inputs available nor the technology. If one wishes to argue that the increased price supports change the existing institutions, namely they provide farmers with greater incentives to grow soybeans. Then the curve would shift further out along the horizontal axis, with no change in the vertical intercept.

Consider a Farmer's Production Possibilities Curve, with Corn Measured on the Vertical