Assignment

Consider an economy that produces only food and cloth- ing. Its production possibilities boundary is shown below. Tonnes of Food per Year 0 1 2 3 4 5 6 7 8 Tonnes of Clothing per Year a) If the economy is at point A, how many tonnes of clothing and how many tonnes of food are being produced? At point B? At point C? b) What do we know about the use of resources when the economy is at point A? At point B? At point C? c) If the economy is at point B, what is the opportunity cost of producing one more tonne of food? What is the opportunity cost of producing one more tonne of clothing? d) What do we know a bout the use of resources at point D? How would it be possible for the economy to produce at point D? Q.2 Economy A produces more of capital goods and fewer consumer goods than Economy B. Which economy will grow more rapidly? Draw two production possibilities curves, one for Economy A and one for Economy B. Demonstrate graphically how one economy can grow more rapidly than the other