Macro Choice markets (HW 2) The table to the right describes two production possibilities frontiers Each PPF looks kinky , so that it is bunch of straight lines that connect the dots given in the table This means that it has a constant slope between two points, and changes slope at each point It Use the information there to answer the following questions PPF technology 1 PPF technology 2 Draw the PPF described by technology 1 (put good 2 on the vertical axis), Then, illustrate and label the optimal production of each good for this economy given the following two price systems Price of good 1 $15, price of good 2 $30 Price of good 1 $50, price of good 2 $10 Hint Remember that two lines with the same slope are tangent at an infinite number of points (or none), while kinks (also called discontinuities ) are tangent to lines with a slope that that falls in a certain range Look at your graph and ask yourself for each point in the table, what slopes are tangent at this point There is a technological improvement that shifts the economy to a new PPF, described by technology 2 in the table on the previous page Along with the technological shift, prices change so that the price of good 1 is now $30, and the price of good 2 remains $10 All in the same set of axes, draw, i) the old PPF, given technology 1, ii) the old market production choice (at the prices of P1 50, P2 10), iii) the new PPF, given technology 2, and iv) the new market production choice (at the prices of P1 30, P2 10) Are the citizens of the economy clearly better off after the shift Why or why not Consider a planned economy using the old technology 1, and producing at the same old level as in question 2 (i e , those from part (1ii), where P1 $50, and P2 $10) This is the best planned outcome given this technology the community indifference curve is known, and gives the same outcome as in markets Draw this outcome, using the technology 1 PPF and the concept of community indifference curves Now, Siberian peasants discover the new technologies described by the second PPF, but the commissariat in Moscow who does the economy's planning does not learn about the innovation What production bundle will the planners choose after the innovation Is this efficient Is this this welfare maximizing How do you know this is so, given your graphs I don't understand what the planner choice will be I think it will be B' because it allocates the resources in the same way, but I don't see how to relate social welfare to it, because when you shift point B parallel, the indifference curve also shifts parallel

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 12, 2024

Macro Choice: markets (HW #2) The table to the right describes two production possibilities frontiers. Each PPF looks kinky, so that it is bunch of

Macro Choice: markets (HW #2)

The table to the right describes two production possibilities frontiers. Each PPF looks "kinky", so that it is bunch of straight lines that connect the dots given in the table. This means that it has a constant slope between two points, and changes slope at each point. It Use the information there to answer the following questions.

PPF: technology 1

PPF: technology 2

Draw the PPF described by technology #1 (put good 2 on the vertical axis), Then, illustrate and label the optimal production of each good for this economy given the following two price systems
Price of good 1 = $15, price of good 2 = $30
Price of good 1 = $50, price of good 2 = $10
Hint:Remember that two lines with the same slope are tangent at an infinite number of points (or none), while "kinks" (also called "discontinuities") are tangent to lines with a slope that that falls in a certain range. Look at your graph and ask yourself: for each point in the table, what slopes are tangent at this point?
There is a technological improvement that shifts the economy to a new PPF, described by technology 2 in the table on the previous page. . Along with the technological shift, prices change so that the price of good 1 is now $30, and the price of good 2 remains $10.
All in the same set of axes, draw, i) the old PPF, given technology 1, ii) the old market production choice (at the prices of P1 = 50, P2=10), iii) the new PPF, given technology 2, and iv) the new market production choice (at the prices of P1 = 30, P2=10). Are the citizens of the economy clearly "better off" after the shift? Why or why not?
Consider a planned economy using the "old" technology #1, and producing at the same "old" level as in question 2 (i.e., those from part (1ii), where P1=$50, and P2=$10). This is the best planned outcome given this technology - the community indifference curve is known, and gives the same outcome as in markets.
Draw this outcome, using the technology 1 PPF and the concept of community indifference curves.
Now, Siberian peasants discover the new technologies described by the second PPF, but the commissariat in Moscow who does the economy's planning does not learn about the innovation. What production bundle will the planners choose after the innovation? Is this efficient? Is this this welfare-maximizing? How do you know this is so, given your graphs?

I don't understand what the planner choice will be. I think it will be B' because it allocates the resources in the same way, but I don't see how to relate social welfare to it, because when you shift point B parallel, the indifference curve also shifts parallel.