Suppose two goods are produced: capital goods (on the y-axis) and consumer goods
ID: 1147574 • Letter: S
Question
Suppose two goods are produced: capital goods (on the y-axis) and consumer goods (on the x-axis) Consider the following events and identify how the PPF will change Event A new computerized assembly line is created The firm chooses to produce an equal number of capital and consumer goods The price of capital goods rises so the firm allocates more resources to the production of capital goods Immigration increases Emigration increases The rate of retirement in the economy increases A hurricane hits the area destroying land Discovery of oil, a resource used in the production of capital goods Consumers prefer more consumer goods to be produced Trade takes place Change to PPF shift right shift left pivot outin on the x-axis pivot outin on the y-axis movement along PPF no changeExplanation / Answer
A new computerized assembly line is created: Shift right (it will increase the production of both the capital and consumer goods)
A firm chooses to produce equal number of capital and consumer goods: Movement along the PPF (he is just changing the number increasing one product and decreasing another)
The price of capital goods rises so the firm allocates more resources to the production of capital goods: Movement along the PPF (Just change in number like above)
Immigration increases:: Shift right (more people to consume the goods and more labor for production).
Emigration increases: Shift left (less labor for production)
The rate of retirement in the economy increases: Shift right (more labor available for production)
A hurricane destroyed land: Shift left (resources destroyed)
Discovery of oil: Pivot out on the Y-axis.
Consumer prefer more consumer goods: movement along the PPF (just increasing production of one while decreasing that of other)
Trade takes places: (This is a tricky one, trade is for capital good or consumer good, has the economy specialized in the production of just producing as they were before. We will assume no specialization) No Change.
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