Question

4. On a graph, show how, if at all, each of the following events would affect the production possibilities of a business. a) Standardized examination scores of high school and college students decline. b) The unemployment rate falls from 9 to 6 percent of the labor force. c) A devastating earthquake destroys numerous production facilities. d) Defense spending is reduced to allow government to spend more on health care.

Answer 1

3. a)The production possibility curve shows the different combinations of two goods that can be produced with given resources and technology. If the farm is producing on any point inside the production possibility curve it is an inefficient level of production. Fish Meat The farm is choosing to produce below the production possibility curve and it is inefficient level of production since the available resources are not utilizing fully. b) AT any point on the production possibility curve shows an efficient level of production Fish Meat If the farm chooses to produce on the point A which is on the production possibility curve, it is an efficient level of production. c) An improvement in technology shifts the production possibility curve to the right. The farm is able to produce more of both fish and meat. Fish Meat

The production possibility curve shifts to rightward with an improvement in technology and the farm is able to produce more of fish and meat. d) If the opportunity cost of producing fish increase the farm will move down on the production possibility curve from point B to A by reducing the production of lish and increasing the production of mcat. Fish Meat While the opportunity cost of fish increase the country will produce more of meat and less of fish. It moves from point A to B. e) While the opportunity cost meant increase the farm will produce more of fish and less of meat. There is a movement up on the production possibility curve from A to B Fish B Meat There is a movement up along the production possibility curve from A to B f) Any point outside the production possibility curve beyond the capacity of the farm and it is impossible. Fish Meat Point A is outside the production possibility curve and it is impossible for the farm to produce this combination.

4. a). The decline in the score of high school and college examination create less demand for high school and colleges. The firm will be producing at a lower point below the production possibility curve or inside the production possibility curve. The firm will produce below the production possibility at C. b) The decrease in unemployment is the indication of economic growth. The firms production possibility curve shift rightwards and it produce more goods. c) The earthquake destroys the capital and labour force. Then the production possibility decreases and the production possibility curve shift downward. The business firm is now able to produce less goods and services,

d) The decrease in government spending reduces the aggregate demand the production in the firm decrease which compels the firm to produce below the productive capacity. Fish > Meat