1. Consider the following: “Under the Five Year Plans, the X leadership mandated a production mix heavily weighted towards capital goods. As a consequence, the Xs enjoyed some years of significant economic growth but very few consumer goods to satisfy their collective wants”. Use a Production Possibilities Curve (PPC) diagram and brief verbal descriptions to explain the X’s economic growth. Use another PPC diagram and brief verbal descriptions to explain the scarcity of X consumer goods.
2. Gus and Harry have different opinions about the effects of a recent advance in the technology used to produce consumer goods. Gus claims that the technological advance favoring consumer goods will result in only more consumer goods being produced (no change in capital goods production.) Harry however, claims that it is possible that both consumer and capital goods production could increase. Use a PPC diagram and brief verbal descriptions to illustrate both Gus’ and Harry’s views.
3. Prior to W.W.II, the USSR was operating at full-employment. The USA, on the other hand, was mired in very high unemployment. When the war begun, both the USA and USSR needed to increase the production of military goods. The USA was able to produce more military goods with out a large decrease in the production of civilian goods. The USSR, though, was forced to a large decrease in the production of civilian goods. Use separate PPC diagrams of the USA and USSR economies to illustrate these events. Briefly explain your analysis.
4. Many economic analysts are concerned with the current level of economic activity in Bosnia. Due to the prolonged fighting and ethnic conflict, many of Bosnia’s natural resources and many factories have been damaged or destroyed. Therefore, many analysts believe that Bosnia is unable to produce as much as before the war, and hence, many people will be without essential consumer goods such as food. Use a PPC and brief verbal description to analyze the Bosnian economy.
5. Give a detailed intuitive explanation of increasing opportunity costs. Why do these costs increase? (Hint: Why is the PPC is concave?)