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Essentials of Economics 10th Edition by Bradley Schiller, Karen Gebhardt
Edition 10ISBN: 978-1259235702Essentials of Economics 10th Edition by Bradley Schiller, Karen Gebhardt
Edition 10ISBN: 978-1259235702 Exercise 1
Iceland has no military. ( a ) So, at what point in Figure 1.1 is Iceland producing? ( b ) If Iceland decided to produce the quantity OE of military goods, how much consumer output would it have to give up?
Explanation
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a) Country I has no military. This means that Country I will devote zero resources towards production of military goods and will devote all its resources towards production of consumer goods.
In figure 1.1, point A denotes output mix consist of only consumer goods with no military goods.
Thus, with zero production of military goods, Country I will be producing at point A in figure 1.1.
b) At present, Country I is producing only consumer goods. This means that it is producing OA quantity of consumer goods and operating at point A of PPF.
If it decides to produce OE quantity of military goods, then the PPF will be downward sloping from A to C. Corresponding to point C , OD quantity of consumer goods is produced.
Previously, Country I was producing OA quantity of consumer goods. Now, it is producing OD quantity of consumer goods. So, it is giving up
AD quantity of consumer goods to produce OE quantity of military goods.
Thus, if Country I decides to produce the quantity OE of military goods, it would have to give up AD quantity of consumer goods.
In figure 1.1, point A denotes output mix consist of only consumer goods with no military goods.
Thus, with zero production of military goods, Country I will be producing at point A in figure 1.1.
b) At present, Country I is producing only consumer goods. This means that it is producing OA quantity of consumer goods and operating at point A of PPF.
If it decides to produce OE quantity of military goods, then the PPF will be downward sloping from A to C. Corresponding to point C , OD quantity of consumer goods is produced.
Previously, Country I was producing OA quantity of consumer goods. Now, it is producing OD quantity of consumer goods. So, it is giving up
AD quantity of consumer goods to produce OE quantity of military goods.Thus, if Country I decides to produce the quantity OE of military goods, it would have to give up AD quantity of consumer goods.
Essentials of Economics 10th Edition by Bradley Schiller, Karen Gebhardt
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