Question asked by Filo student

Remember: "Graph" or "illustrate" requires that you label all axes, curves, and points as indicated. If there is some type of shift, use an arrow to indicate direction of the change. "Calculate" means you must show your work. A country is at full employment and produces only consumer goods and capital goods. If it produced only consumer goods with all its available resources, it could make 250 million units. If it produced only capital goods, it would produce 50 million units.

1. Graph the production possibilities curve for this country, assuming constant opportunity cost between the two types of goods. Place capital goods on the vertical axis and consumer goods on the horizontal axis. Indicate a point on your graph, labeled X, that represents full employment and a possible combination in which both goods are being produced.
2. What is this country's opportunity cost for producing a consumer good? Explain.
3. Assume that the country is working beyond its sustainable productive capacity. In which area - on the PPC, inside the PPC, or outside the PPC - is this country producing?
4. The production level from part (c) leads to a breakdown in several resources and plunges the economy into recession. Indicate a point that would correspond to this on your graph and label it $Z$.
5. Assume that there is an improvement in technology that affects production of both consumer and capital goods. Illustrate the impact of this change on your graph from part (a). Use an arrow to indicate the direction of the change.
6. Another country with constant opportunity cost can produce 200 million units of consumer goods with all of its available resources or 100 million units of capital goods with all of its available resources.

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