1.8 A nation with fixed quantities of resources is able to produce any of the following combinations of carpet and carpet looms:

These figures assume that a certain number of previously produced looms are available in the current period for producing carpet.

a. Using the data in the table, graph the ppf (with carpet on the vertical axis).

b. Does the principle of “increasing opportunity cost” hold in this nation? Explain briefly. (Hint: What happens to the opportunity cost of carpet—measured in number of looms—as carpet production increases?)

c. If this country chooses to produce both carpet and looms, what will happen to the ppf over time? Why?
Now suppose that a new technology is discovered that allows an additional 50 percent of yards of carpet to be produced by each existing loom.

d. Illustrate (on your original graph) the effect of this new technology on the ppf.

e. Suppose that before the new technology is introduced, the nation produces 15 thousand looms. After the new technology is introduced, the nation produces 27 thousand looms. What is the effect of the new technology on the production of carpet? (Give the number of yards before and after the change.)

Transcribed Image Text:

Yards of carpet (Millions) 0 Carpet looms (Thousands) 45 12 42 24 36 36 27 48 15 60 0