To the right is a production possibilities table for consumer goods (automobiles

Question

To the right is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): Production Alternatives Type of Production A B C D E Automobiles 0 2 4 6 8 Forklifts 30 27 21 12 0 a. Show these data graphically. Upon what specific assumptions is this production possibilities curved based? b. If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length? c. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources? d. Is production at a point outside the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities curve?

Explanation / Answer

A. The assumption is the trade-off b/t autos and forklifts. And that in the hypothetical, the these are the only two goods being produced.

B. At C one more auto costs about 5 forklifts. One more forklift costs about 1/5th of an auto.

Increasing opportunity costs happen b/c it's not very easy to stop making autos and switch to forklifts (limits of labor skills, technology).

C. That it is being inefficient. It has the 'possibility' of producing about 3 more forklifts when 3 autos are being made.

D. An option beyond current possibility. Economic growth must occur.

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