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Chapter 02 Homework-Shifts in production possibilities

Chapter 02 Homework- EC110-Principles of Macroeconomics

Question

Suppose the fictional country of Cuyahoga produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for rye, an agricultural good, and telephoto lenses, a capital good.

Drag the production possibilities frontier (PPF) on the graph to show the effects of a time-saving innovation in the manufacturing of telephoto lenses.

Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther.

Chapter 02 Homework-Shifts in production possibilities

Explanation

Because of the innovation in capital goods production, more telephoto lenses can be produced using the same amount of resources; however, there is no reason to think that the maximum amount of rye that can be produced would change.

For instance, when you look at the vertical axis, you see that if Cuyahoga produces zero bushels of rye, it can initially produce a maximum of 210,000 telephoto lenses per year. Because the innovation in capital goods production increases the number of telephoto lenses Cuyahoga can produce, you should have moved the point to 280,000 telephoto lenses per year.

Similarly, when you look at the horizontal axis, you see that if Cuyahoga produces zero telephoto lenses, it can initially produce a maximum of 120 million bushels of rye per year. Because the innovation in capital goods production does not affect the amount of rye Cuyahoga can produce, you should have left the point at 120 million bushels of rye per year.

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