Question

3. The first principle of economics discussed in Chapter 1 is that people face trade-offs. Use a production possibilities frontier to illustrate society's trade-off between two "goods"-a clean environment and the quantity of industria output. What do you suppose determines the shape and position of the frontier? Show what happens to the frontier if engineers develop a new way of producing electricity that emits fewer pollutants.

Answer 1

The frontier will have a concave shape and it is flat when the opportunity cost of environmental improvement is low, it is deep when the opportunity cost of environmental improvement is high. When there is a small amount of industrial output, people may not value the environment much. When the industrial output increases, then people become aware of the clean environment and value it. The industrial output grows higher as when the environment gets cleaner. Engineers have developed a new way of producing electricity which emits fewer pollutants and it helps to make environment clean. Hence, the frontier shifts outward and the opportunity cost of environmental improvement also grows smaller.