When an economy sacrifices production of consumption goods to produce more capit

Question

When an economy sacrifices production of consumption goods to produce more capital goods, we would expect that the production possibilities curve will shift outward shift inward become a straight line. Shift about in random fashion. Which of the following statements is a positive economic statement? Increases in poverty rates signify a deterioration of the U.S economy. The number of families living in poverty in the United States is too high. Government programs to help the poor and just making problems worse. One is every five children in the United States is living in poverty. According to the above figure for a gasoline market, an increase in the price from $2 to $4 will result in an increase in demand of 20 million gallons. an increase in quantity demanded of 10 million gallons. an increase in quantity supplied of 20 million gallons. a shortage of 30 million gallons. In conditions of full employment. no one in the labor force is unemployed. The only unemployment results from cyclical swings in economic activity. the only unemployment results from a normal frictions and structural mismatches in the labor market. no one in or out of the labor force is unemployed.

Explanation / Answer

Answers:

5. A). shift outward

Reason : In the concept of PPC the economy has to decide what to produce keeping in mind the limited resouces of the economy, because of the scarce resources the economy has to decide what to produce and what to sacrifice, in case of choice between consumer and capital goods, if the economy sacrifies production of consumer goods in order to produce more capital goods, there will be economic growth in the economy because production of more capital goods implies more production in future and more production implies economic growth and in case of economic growth the PPC will shift outward to the right.

6. D). One in every five children in the United States is living in poverty

Reason: This is a positive statement because positive economics is based of facts, positive economics focus on what the situation is and what is the current situation whether it is right or not, it does not make any value judgements like in normative economics.

7. C). An increase in quantity supplied of 20 million gallons

Reason: As we know that price and quantity supplied are positively realated to each other, more the price more is the supply and vice versa less the price less is the supply, when price of gasoline rises from $2 to $4 then there is an increase in quantity supplied from 30 to 50 million gallons.

8. C). the only unemployment results from a normal frictions and structural mismatches in the labor market

Reason: In conditions of full employment, there will always be some people who have quit or lost a job or are seasonally unemployed for some time and are looking for a new job, and there will always be some mismatch between the skill of the labour and the requirements of the job which results in a certain level of unemployment even in the situation of full employment.

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