Suppose that a nation can only make two products: defense goods and civilian goods. In a graph of the marginal benefit (MB) and marginal cost (MC) of defense goods, a leftward shift of the MB curve will cause the optimal quantity of
A) civilian goods to decrease.
B) both civilian goods and defense goods to decrease.
C) defense goods to decrease.
D) defense goods to increase.

Question

Quizplus · Accepted Answer

A leftward shift of the marginal benefit (MB) curve for defense goods means that the benefits of producing defense goods have decreased. This will cause the optimal quantity of defense goods to decrease as well since the cost of producing them now outweighs the benefits. There is no reason to believe that the MB shift will also affect the MC curve for civilian goods, so there is no reason to expect a change in the optimal quantity of civilian goods.

Suppose That a Nation Can Only Make Two Products: Defense