Which of the following could allow economy to achieve production possibilities c

Question

Which of the following could allow economy to achieve production possibilities corresponding to point D? A decrease in the unemployment rate. An increase in the unemployment rate. An increase in the size of the labor force. A reallocation of resources away from production of national defense toward the production of other goods and services. Which of the following policies are likely to increase future economic growth of production possibilities? An increase in the proportion of aggregate income devoted to consumption. A change in the tax law that increases incentives to save. A decrease in investment. Improvements in technology that increase the productivity of workers. Both B and D. George spends all his weekly income of $100 on pizza and video rentals. If the price of a pizza is $15 and the price of a video rental is $5 then, other things being equal, which of the following will decrease the opportunity cost of a pizza? A10 percent increase in the price of both pizza and video rental. An increase in the price of video rentals. A decrease in the price of video rentals. A decrease in weekly income. An increase in weekly income.

Explanation / Answer

7) An increase in labor will increase the quantity produced of that good which is labor intensive. Hence the economy will produce more of such goods so PPF shifts outwards from one intercept.

8) The production possibilities frontier (PPF) is curve that exhibits all the possible combinations of two products that a country can manufacture with its given resources and given state of technology. The slope of a PPF is the opportunity cost of producing one product in relation with the other. Since both products are produced with same resources (assuming that the resource is equally efficient in the production of two goods), the PPF is concave to the origin. So when there is change in the technology or resources, PPF SHIFTS.

9) The slope of budget constraint is the price ratio of two goods. The opportunit cost of pizza is the monetary amount that was used to buy pizza which is given up buy more video rental .So When the price of video rentals rise, the Opportunity Cost of pizza falls.

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