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Country X is faced with the following output combinations for capital goods and consumer goods.

| Option | Capital Goods | Consumer Goods |
|--------|----------------|----------------|
| A | 0 | 400,000 |
| B | 25,000 | 380,000 |
| C | 50,000 | 350,000 |
| D | 75,000 | 200,000 |
| E | 100,000 | 0 |

Complete parts a, b, c, d, e, f, g, h, i, j, and k.

a. Graph the production possibilities curve for Country X with capital goods on the x-axis and consumer goods on the y-axis.

b. What is the numerical value for the y-intercept in this example?

c. How is opportunity cost represented on the graph?

d. Solve for the slope between Options A and B, Options B and C, Options C and D, and Options D and E.

e. Does the Law of Increasing Opportunity Costs hold for this example? Explain why or why not.

f. As you move from point C to point D, what is the cost of one more consumer good?

g. As you move from point C to point D, what is the cost of one more capital good?

h. If Country X wanted to experience higher levels of economic growth over the next few years, would they be better off choosing option B (a combination of 25,000 capital goods and 380,000 consumer goods) or option D (a combination of 75,000 capital goods and 200,000 consumer goods)? Explain.

i. Based upon your response to part h, what is the marginal or opportunity cost of this decision in terms of economic growth and profits? In other words, if you chose Option B in part h, will this nation be sacrificing current or future profits? If you chose Option D in part h, will this nation be sacrificing current or future profits?

j. On your graph, show a point that represents a point of unattainability in the economy. Label this point U.

k. What would have to change in this economy in order to reach this unattainable point?

Answer :

Final answer:

The y-intercept of the production possibilities curve is 400,000. The opportunity cost represented on the curve varies between options due to the varying trade-offs. Country X should choose Option D to stimulate economic growth, though this involves a present sacrifice in consumer goods.

Explanation:

This question revolves around the economic concept of the production possibilities curve, opportunity cost, and economic growth. The production possibilities curve represents the potential trade-off between two goods that an economy can produce using available resources and technology. In the given case of Country X, the two goods are capital goods and consumer goods.

The y-intercept in this example would be 400,000 consumer goods, as this is the maximum output of consumer goods when no capital goods are produced (Option A).

The opportunity cost is represented on the graph as the slope of the production possibilities curve. The slope of the curve shows the rate at which one good can be substituted for another.

The slopes between the options can be calculated as the change in consumer goods divided by the change in capital goods. For example, between Option A and B, the slope is (400,000 - 380,000)/(0 - 25,000) = -0.8.

In this example, the Law of Increasing Opportunity Costs does not hold. The opportunity cost of capital goods does not increase as more consumer goods are produced.

As we move from point C to D, the cost of one more consumer good is the amount of capital goods forgone. Similarly, the cost of one additional capital good is the amount of consumer goods forgone.

For Country X to experience higher levels of economic growth over the next few years, it would be better off choosing Option D. This is because economic growth is driven by investment in capital goods. Although this choice involves sacrificing some current consumption, it could lead to greater levels of output and consumption in the future.

Choosing Option D involves a marginal or opportunity cost in terms of forgone current consumption. If Country X chooses Option B, it will be sacrificing future profits for current consumption.

An example of a point of unattainability could be a production combination of 120,000 capital goods and 410,000 consumer goods. To reach this point, Country X would need to enhance its resources or improve its technology.

Learn more about Production Possibility Curve and Opportunity Cost here:

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