1-Production Possibilities Curve

1) Imagine a society that produces military goods and consumer goods, which we will call 'guns' and 'butter.'

a) Draw a production possibilities curve for guns and butter. Explain why is has a bowed-out shape. If they use all of their resources to produce guns, they can produce 1000 guns. Label this point as A. If they use all of their resources to produce butter, they can produce 2500 butter. Label this point as B. They are currently utilizing all of their resources to produce 600 guns and 1700 butter. Label this point as C. The market changes and they are now producing 750 guns and 1400 butter. Label this point as E. What is the opportunity cost of producing 150 more guns?

b) Show a point that is impossible for the economy to achieve. Label this as point F. Covid-19 hits the market. Depict this point and label it as point G.

c) Imagine that the society has two political parties, the Hawks, who want a strong military, and the Doves, who want more butter (consumer goods). Show a point on your production possibilities curve that the Hawks might choose and a point the Doves might choose. Label these points as D and H.

d) Imagine that an aggressive neighbouring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger 'peace dividend,' measured by the increase in butter production?

e) Depict and breakthrough in technology that applies to the production of butter. After this breakthrough in technology if all of their resources are used to produce butter, they can produce 2800 butter.