Question

In order for Ethiopia to increase its future economic growth, it must choose a point that is a. below its production possibilities curve. b. further along on its production possibilities curve toward the capital goods axis. c. further along on its production possibilities curve toward the consumption goods axis. d. further along on its production possibilities curve away from the population axis. e. above its production possibilities curve.

Short answer

The correct answer is (b) further along on its production possibilities curve toward the capital goods axis. Investing more in the production of capital goods can increase Ethiopia's productive capacity, promoting future economic growth.

Step-by-step solution

Option A

A point below the production possibilities curve would indicate that the economy is not using all its available resources efficiently or that there is unemployment. This situation would not contribute to increasing future economic growth, as it is an inefficient allocation of resources.

Option B

Moving further along on the production possibilities curve towards the capital goods axis implies that Ethiopia is allocating more resources to the production of capital goods. These are goods that are used in the production of other goods and services, such as machinery, tools, and infrastructure. By investing in capital goods, Ethiopia can increase its productive capacity and experience economic growth in the future.

Option C

Moving further along on the production possibilities curve towards the consumption_goods axis means the economy is focusing more on immediate consumption rather than investing in its future. While this might improve the standard of living in the short-term, it is not a sustainable strategy for long-term growth.

Option D

There is no population axis in the Production Possibilities Curve model. The axes represent the quantities of two types of goods (capital goods and consumer goods) being produced, given the available resources and technology. This option doesn't make sense in the context of the PPC and does not help answer the question.

Option E

A point above the production possibilities curve is not feasible, as it would require the economy to produce more goods and services than its current resource constraints allow. Attempting to push the economy above the PPC would likely result in inefficiencies, wasted resources, and unsustainable growth. #Conclusion#: Based on the analysis of each option, the correct answer is: b. further along on its production possibilities curve toward the capital goods axis. By allocating more resources towards producing capital goods, Ethiopia can increase its productive capacity, which will lead to future economic growth.

Key concepts

Economic Growth

Economic growth is a crucial concept when discussing a nation's development. It refers to the increase in the amount of goods and services produced by an economy over time. Higher rates of economic growth can lead to improved standards of living and more resources for individuals and the government to utilize.

For Ethiopia, increasing economic growth means making strategic decisions about how to use its resources. This can involve choosing to produce more capital goods as a means of investment in the nation's future productive capacity. By dedicating more resources to this end, Ethiopia stands to benefit from technological advancements and increased efficiency that can accelerate growth rates.

However, sustaining this growth requires careful planning and implementation of policies that foster innovation and skills development. Factors such as political stability, education systems, and infrastructure also play a pivotal role in ensuring that the economy is well-positioned to take advantage of the investments made today.

Capital Goods

Capital goods are one of the main drivers of economic progress. They are the tools, machinery, buildings, and other equipment needed for the production of consumer goods and services. Capital goods do not immediately satisfy consumer wants, but rather enable the production of consumer goods in larger quantities or at a higher quality in the future.

In the context of the Production Possibilities Curve (PPC), directing resources towards capital goods production is a forward-thinking approach. It's like planting seeds for a harvest that will feed the population for years to come; the country sacrifices consumption today for increased production and potential consumption tomorrow.

Investing in Capital Goods

Investment in capital goods is a strategy for long-term growth, leading to improvements in productivity across various sectors. When a country like Ethiopia invests in modern machinery, not only manufacturing improves but it can also spark innovation, improve logistics, and enhance competitiveness in global markets.

Resource Allocation

Resource allocation involves decisions about how to distribute the finite resources of a country to produce various combinations of goods and services. The Production Possibilities Curve (PPC) is a tool that depicts these allocation choices and the trade-offs between different types of goods.

Efficient allocation of resources is essential for maximizing an economy's output. For Ethiopia, deciding to use a bigger share of its resources for capital goods rather than consumption goods can be a strategic move to stimulate economic growth.

Prioritization

The concept of opportunity cost is closely related to resource allocation. When resources are used for one purpose, such as constructing factories or roads, they cannot be used for another, like manufacturing consumer electronics or clothing. Thus, a country must prioritize its economic objectives and choose the most effective use of its resources to achieve its goals.