To see how this tool helps us to think about scarcity and the problem of what to produce, we consider




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[pic] UNITPRODUCTION POSSIBILITY FRONTIER. 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.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


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 workerindustries exhibit diminishing returnsoff

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 vocabularythis 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

. 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

. Look at paragraph 4 again and say what words have the same meaning as: • extra • moving from ... to ... • get • make a blow-job. Check your grammarCONDITIONS

Do you remember? If everyone has a job there is full employment. If more workers are employed total output will increase.'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.

. 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 girlyou remember? If Saudi Arabia didn't have oil, it would not be so rich.

. Now say what you think would be the result if the circumstances below actually happened. Complete the sentences, giving your own opinion:: 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.

. 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.1

• Note down the tool the lecturer is going to talk about.2 • Label the diagram below in the way the lecturer tells you to.3 • Label the diagram below in the way the lecturer tells you to.4 • Label the diagram below in the way the lecturer tells you to.5

• Label the diagram below in the way the lecturer tells you to.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. (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.


. 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.. Understanding a printed text (2)the following text carefully, looking up anything you do not understand,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 producin

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