Exhibit 12 Production possibilities curves Consumption goods Year x Capital good

Question

Exhibit 12 Production possibilities curves Consumption goods Year x Capital goods In Exhibit 12, the production possibilities curves for a country are shown for the years Year X and Year Y. Suppose this country was located at point A in Year X and point B in Year Y. This country a. is producing the same number of capital goods in both years. b. is producing the same number of consumption goods in both years. c. has shown no growth between Year X and Year Y d. has higher unemployment in Year X than in Year Y e. has higher unemployment in Year Y than in Year X. If Congress decides to increase the tax per pack paid by sellers of cigarettes, other things being equal, the price of cigarettes will rise. This rise in prices can be attributed to a (an): a. upward movement along the supply curve for cigarettes. b. rightward shift of the supply curve for cigarettes. c. upward movement along the demand curve for cigarettes d. leftward shift of the supply curve for cigarettes. of 8

Explanation / Answer

(1) (b)

In points A & B, same amount of consumption goods are consumed, but amount of capital goods is higher in point B.

(2) (d)

Since the tax will lower the effective price received by sellers, they will lower supply which will shift the supply curve leftward, increasing price and decreasing quantity.

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