Question

P1. Draw a bowed-out PPC with an aggregate measure of medical services, Q, on the horizontal axis and an aggregate measure of al other goods & services, Z, on the vertical axis. Discuss the implications of the following changes on the quantity of medical services and all other goods. 1. A movement down along the curve 2. A movement from the interior of the curve to a northeasterly point on the curve 3. An decrease in the quantity of abor in the economy 4. A technological discovery that increases the production of Z. 5. A technological discovery that increases the production of Q.

Answer 1

1) To increase medical services, producer has to sacrifice some production of other goods and services. This is represented by the downward movement of PPC.

2) When economy shifts from keeping some resources idle to fully utilization of resources, then point inside PPC shifts to point on PPC.

3) Increase in quantity of labor increases provision of medical services and production of all other goods. This shifts PPF outwards.

4) Technological discovery that increases production of Z pivots the PPC.

5. Technological discovery that increases production of Q pivots the PPC curve on horizontal axis.