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 MB curve of defense goods means that the benefit derived from producing defense goods has decreased while the cost remains the same. Therefore, the optimal quantity of defense goods produced should decrease. This will allow more resources to be allocated towards the production of civilian goods, resulting in an increase in the production of civilian goods. Therefore, the correct answer is C, defense goods to decrease.

Suppose That a Nation Can Only Make Two Products: Defense