Question

1. Consider the following Production Possibilities Frontier. (Chapter 1)

Goods Possibilities

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   A B C D E

Capital Goods 5 4 3 2 0

Consumer Goods 0 5 9 12 14

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e. List 4 ways the society might be able to expand (shift) its current PPF out into the unattainable areas?

f. True/False: (1) There is zero unemployment when we are on the PPF? (2) Unemployment only exist when we operate under the PPF? Explain your answers!

Answer 1

e. The PPC would shift to the right if:

1. There is a technological advancement for both capital and consumer goods.

2. There is an increase in resources when a new untapped oil reserve is discovered.

3. The size of the labor force in the economy increases when more people attain the working age.

4. The economy receives funding from the World Bank.

f.

1. On the PPF, it is assumed that all resources in an economy are being utilized efficiently. That is, every person who is willing and able to work is working and there is no unemployment. Hence, this statement is correct.

2. This statement is also correct as under the PPF, the resources are not utilized to their full potential and there is room to increase the resources' efficiency. This includes the labor force as well. Therefore, there exists unemployment only under the PPF and not on the PPF.