1.Production Possibilities (42 points)

Country X is faced with the following output combinations for capital goods and

consumer goods.

OptionCapital Goods Consumer Goods

A028,000

B2,000 24,000

C4,00018,000

D6,00010,000

E8,0000

Complete parts a, b, c, d, e, f, g, h, and i.

a.Graph the production possibilities curve for Country X with capital goods on the

x-axis and consumer goods on the y-axis.

b.What is the numerical value for the y-intercept in this example?

c.How is opportunity cost represented on the graph?

d.Solve for the slope between Options A and B, Options B and C, Options C and D, and Options D and E.

e.Does the Law of Increasing Opportunity Costs hold for this specific example?

Explain why or why not.

f.As you move from point B to point C, what is the cost of one more consumer

good?

g.As you move from point B to point C, what is the cost of one more capital good?

h.If Country X wanted to experience higher levels of economic growth over the

next few years, would they be better off choosing option B (a combination of

2,000 capital goods and 24,000 consumer goods) or option D (a combination of

6,000 capital goods and 10,000 consumer goods)?Explain.

i.Following up on your response to part h, what is the opportunity cost of this

economic growth and combination of capital and consumer goods selected in part

h in terms of profits?In other words, if you chose Option B, what does it mean

for the current and future profits in this nation?If you chose Option D, what does

it mean for the current and future profits in this nation?

Complete either parts j and k together OR parts l and m together.If you wish to attempt to earn extra credit, you may complete all four parts (j, k, l, and m), but you must indicate which two parts (j and k OR l and m) you want to count as the extra credit.Otherwise, no extra credit will be awarded.Extra credit can only be earned by answering all four parts (j, k, l and m).The two extra credit parts are worth 1 point apiece.

j.On your graph, show a point that represents a point of inefficiency occurring in

the economy.Label this point I.

k.Suppose there is a technological advancement only in capital good production

with no change in consumer good technology.Show how this would affect your

graph and label this change as T. (2 points)

l.On your graph, show a point that represents a point of unattainability in the

economy.Label this point U.(2 points)

m.What would have to change in this economy in order to reach this unattainable

point? (2 points)