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Chapter 2: Q. 2.24 (page 47)

Suppose that in Fig 2-24, the nation with other wise the same background conditions as in Problem 2-23 currently has sufficient resources to produce combinations located along only the innermost production possibilities curve. If the nation produces no additional smartphones this year, will the intermediate-shifted PPC resulting from minimal economic growth or the farthest shifted PPC caused by more significant economic growth be more likely to apply next year?

Short Answer

Expert verified

Yes.

Step by step solution

01

Step1. Given information

Given it is that the nation does not have enough resources and can only produce at the inner, inferior combinations of the PPC curve.

02

Step2. Explanation

The growth of any country is linked to the production of capital goods primarily. If a country is able to produce more, that is because the support of the production of capital goods exist. But, here since the question says there is no production of capital goods, there might not be any expansion of production. So, there is no shift in PPC/PPF. This also means there are no consumption goods being produced. But since we said, there might be no production of capital goods, the chances of production of capital goods might still exist. There hence as a result of this, there might be a shift in the PPC outwards, indicating growth.

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Most popular questions from this chapter

Distinguish between absolute and comparative advantage.

Country A and country B produce the same consumption goods and capital goods and currently have identical production possibilities curves. They also have the same resources at present, and they have access to the same technology.

a. At present, does either country have a comparative advantage in producing capital goods? Consumption goods?

b. Currently, country A has chosen to produce more consumption goods, compared with country B. Other things being equal, which country will experience the larger outward shift of its PPC during the next year?

Define opportunity cost. What is your opportunity cost of attending a class at 11:00 A.M.? How does it differ from your opportunity cost of attending a class at 8:00 A.M.?

Based on the information provided in Problems 2-6, what is the opportunity cost to this student of allocating enough additional study time on economics to move her grade up from a 90 to a 100?

Recently, a woman named Mary Krawiec attended an auction in Troy, New York. At the auction, a bank was seeking to sell a foreclosed property: a large Victorian house suffering from years of neglect in a neighborhood in which many properties had been on the market for years yet remained unsold. Her \(10 offer was the highest bid in the auction, and she handed over a \)10 bill for a title to ownership. Once she acquired the house, however, she became responsible for all taxes on the property and for an overdue water bill of \(2,000. In addition, to make the house habitable, she and her husband devoted months of time and unpaid labor to renovating the property. In the process, they incurred explicit expenses totaling \)65,000. Why do you suppose that the bank was willing to sell the house to Ms. Krawiec for only $10? (Hint: Contemplate the bank’s expected gain, net of all explicit and opportunity costs, if it had attempted to make the house habitable.)

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