Question

PART I:     SCARCITY AND OPPORTUNITY COST

The country of Pacifica produces only two general types of goods: consumer goods (“butter”)

                           and capital/military goods (“guns”). Using all its resources to the fullest, the following

                           amounts can be produced.

                                        

Production Points	“Guns”	“Butter”
A.	0	42
B.	5	40
C.	9	36
D.	12	30
E.	14	20
F.	15	0

Answer the following:

1. Construct an accurate graphical model of the production possibilities for Pacifica. You must use graph paper.
2. What is the opportunity cost of moving from

1. A to B
2. B to C                                     d) D to E
3. C to D                                     e) E to F

In answering, provide both the total cost (in terms of butter) and the cost per gun.

3. Why do the costs per gun differ so much?

4. Assume Pacifica is currently producing at Point B. Increased international tensions, such as regional conflicts and ISIS terrorism, force the government to move to Point C, and almost double “Guns” production. Most people object to this, but will agree to it if they can still enjoy the same amount of “Butter” consumption as at Point B. What is wrong with this argument? Explain.  

Make as per Canadian Standards. thanks.

Answer 1