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Production Alternatives

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Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts)

PRODUCTION ALTERNATIVES
TYPE OF PRODUCTION A B C D E
Automobiles 0 2 4 6 8
Forklifts 30 27 21 12 0

a. If the economy is at Point C, what is the cost of one more automobile? Of one more forklift? Explain how the production possibility curve reflects the law of increasing opportunity costs.

b. If the economy characterized this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources?

12. Explain how (if at all) each of the following events affects the location of a country's production possibilities curve:

a. The quality of education increases.
b. The number of unemployed workers increases.
c. A new technique improves the efficient of extracting copper from ore.
d. A devastating earthquake destroys numerous production facilities.

13. Distinguish between the resource market and the product market in the circular flow model? In what way are businesses and households both sellers and buyers in this model? What are the flows in the circular flow model?

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This solution analyzes the circular flow model.

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10. Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts)

PRODUCTION ALTERNATIVES
TYPE OF PRODUCTION A B C D E
Automobiles 0 2 4 6 8
Forklifts 30 27 21 12 0

a. If the economy is at Point C, what is the cost of one more automobile? Of one more forklift? Explain how the production possibility curve reflects the law of increasing opportunity costs.

At point C, the economy produces 4 automobiles and 21 forklifts. If we move to point D, the economy produces 6 automobiles and 12 forklifts. Thus, to produce an extra automobile, the cost will be (21 forklifts - 12 forklifts)/(6-4)=4.5 forklifts.

If we move to point B, the economy produces 2 automobiles and 27 forklifts. Thus, ...

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