Suppose that a hypothetical economy which only produces food and clothing has the following production possibility schedule
Question:
Suppose that a hypothetical economy which only produces food and clothing has the following production possibility schedule (table):
Point | Units of Food (millions) | Units of Clothing(thousands) |
A | 0 | 8.0 |
B | 1 | 7.5 |
C | 2 | 6.5 |
D | 3 | 5.0 |
E | 4 | 3.0 |
F | 5 | 0.0 |
a. Graph the production possibility curve (PPC) with clothing on the vertical axis and food on the horizontal axis. Label the production points A through F.
b. What would be the opportunity cost of increasing production of food by 1 million if the economy was originally at Point A and moving to point B?
c. Suppose the economy is currently producing at Point D. What would be the opportunity cost associated with increasing production of food by 1 million units and moving to point E)?
d. Why are food costs increasing? That is, why is the opportunity cost of moving from D to E greater than the opportunity cost of moving from A to B?
e. On the same graph, label point U at the production of 3 thousand units of clothing and 3 million units of food. In addition, label point H at the production of 6 thousand units of clothing and 3.5 million units of food. What do points U and H indicate?
f. What is the difference between unemployed and inefficient use of economic resources?
Expert Answer:
a b The opportunity cost of moving from point A to point B would be change in YChange in X Thus oppo... View the full answer
