Production possibilities frontier

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Reference no: EM1366145

1. Production Possibilities Frontier.

a) Sketch a production possibilities curve (not a straight line), with consumer goods on the horizontal axis and capital goods on the vertical axis.

(Do not use any numbers in your diagram.)

b) Show three points (A, B, C) that represent alternative combinations of goods and services under conditions of full employment.

c) Show, two points, T and U, which represent an impossible combination (T), and a combination with unemployed resources (U).

d) Comment on how a choice between the mix of consumer and capital goods today may affect a country's rate of economic growth over the next 10 years.

(You may draw additional curves on your diagram, if you wish.)

2. Petrol for cars.

a) Explain what we mean by equilibrium in the petrol market.

b) Comment on likely long-run shifts in the world demand for petrol.

c) Petrol is an ideal product to tax because the demand for petrol is both high and inelastic.

With the help of a sketch diagram, explain what will happen to the revenue from petrol sales if there is a decrease in the supply of petrol.

d) Suggest a reason why there might be a decrease in the supply of petrol.

3. Consider the global t-shirt making industry.

State what we mean by:

a) the marginal product of t-shirts

b) the marginal cost of t-shirts

Reference no: EM1366145

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