Answer
a. The production possibility curve is based on the assumption of constant supply of resources and constant technology.
b. The cost of one automobile is 4.5 forklifts. The cost of one forklift is $\frac{1}{3}$ of that of an automobile.
c. It's not using all of its available resources.
d. No. Yes. Yes.
Work Step by Step
a. Changes in technology and in the supply of resources can increase or decrease the production possibility of an economy. The graph assumes those variables are kept constant.
b. If we go from point B to point D, we gain 2 automobiles but lose 9 forklifts. Therefore the cost of 1 automobile is $\frac{9}{2}$ = 4.5 forklifts. If we move from B to C, we lose 2 automobiles but gain 6 forklifts - the cost of an additional forklift is $\frac{2}{6}$ = $\frac{1}{3}$ of an automobile.
c. We can see from the graph that if the economy is producing 3 automobiles, it can produce more than 20 forklifts. Therefore, the economy is not using all of its available resources.
d. Currently, a production outside the production possibilities curve is not possible. There is no way an economy can produce more than it's resources allow. Future advances in technology could allow production of more goods with the available resources and allow consumption greater than the current one. International trade can also achieve that, as it allows each country to specialize in the production of the goods for which it has the best available resources, and trade for the other.
