1.Production Possibilities (21 points)

It has been determined that Australia and New Zealand can produce the following

combinations of consumer and capital goods.

AustraliaNew Zealand

OptionConsumer Goods Capital GoodsConsumer GoodsCapital Goods

A300,000 0 120,0000

B225,00018,750 90,00015,000

C150,00037,500 60,000 30,000

D75,00056,250 30,000 45,000

E075,0000 60,000

Complete parts a, b, c, d, and e and either part f OR part g.

a.Graph the production possibilities curve for both nations on separate graphs with capital goods on the x-axis in each case.

b.Does the Law of Increasing Opportunity Costs hold for Australia? Explain.

c.On your graph for Australia, show a point that represents a point of inefficiency occurring in the economy.Label this point I.

d.If New Zealand wanted to experience higher levels of economic growth over the next few years, would they be better off choosing option B (a combination of 15000 capital goods and 90000 consumer goods) or option D (a combination of 45000 capital goods and 30000 consumer goods)?Explain.

Based upon your response to part d, what is the opportunity cost of this economic growth and combination of capital and consumer goods selected in part d?