Chapter 7R, Problem 1FRQ

a)

To determine

The graph of the production possibilities curves for an economy that produces capital goods and consumer goods and labeling with A and B for Production when the economy is producing only capital goods and a point that is currently unattainable respectively.

Explanation of Solution

The following graph shows the production possibilities curve for an economy that produces capital goods and consumer goods:

  

This graph shows capital goods on the horizontal axis and consumer goods on the vertical axis.

The possibility curve is in a Bowed shape which is labeled by PPC_1.

Here, the point that shows production when the economy is producing only capital goods is labeled with A, and a point that is currently unattainable respectively is labeled by B as it is unattainable therefore, it would be out of the bowed line of PPC.

Economics Concept Introduction

Introduction: The graph is known as the production possibilities curve (PPC) when it illustrates all the possible output combinations that can be created using the available resources and technology in the economy.

b)

To determine

The economic growth on the graph.

Explanation of Solution

The graph will show the economic growth as follows:

  

When there is an improvement in an economy's capacity to generate products and services over time, then in the PPC graph, the economic growth is represented by a shift away from the PPC. It means there is an outward shift of PPC and unattainable points can possibly be attained after economic growth.

Economics Concept Introduction

Introduction: The graph is known as the production possibilities curve (PPC) when it illustrates all the possible output combinations that can be created using the available resources and technology in the economy.