Question

3) Consider a simplified version of the Gulf Coast economy, where the region uses humans (labor resources) and equipment (capital resources) to produce two different goods: music and oil. Using production possibilities frontiers (PPFs), illustrate how the PPF would change in each of the following scenarios. ) A hurricane destroys much of capital required for production in displaces much of the population, reducing the economy's ability to produce anything. b) A hurricane destroys much of the capital, which is required for oil production but not music production, and the people stay in their communities in the wake of the destruction. l Advanced computer software for music production reduces the importance of major music labels and recording studios, enabling more and more people to launch music careers. d) Increased safety standards on oil refineries shuts down half of the refineries due to failure to comply. e) Rapid development leads to large population growth.

Answer 1

Ans

(a) see fig 2 ppf shifts to leftwards from CD to Ad as economy can now produce less (b) oil production falls Hence ppf swifts from CD to AD (fig b) (c) music production rises ppf shifts from CD to CE (fig c) (d) oil production falls by half from OC to OA (fig d) (e) ppf shifts rightwards from CD to EF as economy can produce more due to increase labour force