South Korea is economically advanced relative to North Korea by all the standard

Question

South Korea is economically advanced relative to North Korea by all the standard measures of economic well-being (e.g.. per capita income. GDP. food consumption). North Korea devotes a larger proportion of its economic resources to military/defense endeavors than does South Korea. And yet South Korea spends more on military /defense than does North Korea. Using the economic principle of the Production Possibility Curve (PPC) (or Production Possibility Frontier), show these characteristics of the two Korean countries in terms of consumer goods ("butter") and military goods ("guns') in the space below. Remember to label each axis. If the South Korean economy grew from 2010 to 2012, but all of the growth took place in the consumption sector (i.e.. in "butter"), in the space below draw what the 2012 PPC for South Korea would look like compared to the 2010 PPC. Why is the Production Possibility Curve typically drawn concave from below (i.e.. bulging outward)?

Explanation / Answer

Assuming you set the y-axis as guns and x-axis as butter... a.North Korea will have a much steeper line than South Korea, it spends a larger proportion of their resources on weapons than South Korea does (say 2:1 ratio). South Korea's line will intersect the y-axis at a point HIGHER than that of North Korea despite that fact that the line is less steep since it might be not as good as North Korea at producing guns but carries the capacity to produce more. b. The new PPC would be much shallower than the old PPC. c. The PPC is bulging outwards because by its definition the curve is showing how much of a good can be produced by not producing another (e.g. the possibilities of production in the country). However, the transition from producing one good to another is not exactly efficient. The machinery used to produce butter can not be immediatley changed to make guns. Thus, some of the resources of not producing butter for instance does not transition easily into guns, leading to the bulging outwards graph.

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