Answered

Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods,such as machinery, equipment, and computers, are goods used to produce other goods.

Required:
a. Use a production possibilities frontier graph to illustrate the trade-off to an economy between producing consumption goods and producing capital goods. Is it likely that the production possibilities frontier in this situation would be a straight line oe concave? Briefly explain.
b. Suppose the technological advance occurs that affects the production of capital goods but not consumption goods. Show the effect on the production possibilities frontier.

Answer :

Answer: The answer is provided below

Explanation:

a. A production possibility frontier graph is used to show the various combinations of two goods which are the consumption and the capital goods that can be produced while efficiently utilizing the resources that are available in an economy.

The production possibility frontier will be concave. This is because of the increasing marginal opportunity cost. It means that to produce one more unit of capital goods, part of the consumption goods will be sacrificed and vice versa due to limited resources.

b. The diagram has been attached. The effect is that the production possibility frontier will shift upward and there will be more capital goods with the available resources.

The diagram for a and b has been attached.

${teks-lihat-gambar} topeadeniran2

Other Questions