TABLE 1 contains the production possibilities data for capital goods and consumer goods in the economy of New Harmony.
A B C D E
Capital goods 0 8 14 18 20
Consumer goods 30 27 21 12 0
a) Draw the production possibilities curve for New Harmony. Label it PP1. Label each of the five output combinations with the letters A through E. Label consumer goods on the vertical axis and capital goods on the horizontal axis.
b) Assume people of New Harmony have decided to produce 12 units of consumer goods. How many units of capital good could be produced?
c) Assume that the people of New Harmony have decided to produce 11 units of capital goods. Approximately (And I know it doesn’t line up perfectly but make an educated guess) how many units of consumer goods can be produced?
d) What is the opportunity cost of the first 14 capital goods produced?
e) Assuming the economy is producing at point C, what is the cost of 6 additional consumer goods?
f) Discuss what law applies here? (Hint: Why is the Production Possibilities Curve downward)
g) In your own words, discuss the importance of scarcity, choice and opportunity cost for decision-making purposes
TABLE 2 shows the production possibilities between rice and beef
A B C D E
Rice 0 50 90 120 140
Beef 50 45 35 20 0
a) What is the opportunity cost of producing 90 rice? (Hint: Answer should be in terms of what is given up. So the cost of producing 90 rice is how much beef is given up)
b) What is the opportunity cost of going from possibility C to possibility D?
c) What is the opportunity cost of going from possibility D to possibility C?
g) Draw the production possibilities curve. Label it PP1. Label each of the five output combinations with the letters a through e. Label beef on the vertical axis and rice on the horizontal axis.
f) Discuss the effect from a technological change and economic growth and how it will impact our 2-good model.