Explanation The production possibility curve shows the combination of the goods and services that can be produced in a given time period; the long-run aggregate supply curve measures the quantity of goods and services produced in a given period. The general idea of the production possibilities of a nation is determined by the technological impacts, the supply of the resources, and efficiency in resource utilization. The alternative long-run graphical illustration, production possibility curve, is represented in the form of a long-run aggregate supply cu...

Identify the relationship between the production possibility curve and long-run aggregate supply curve of an economy.

The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand for cashews. Suppose a stretch of unseasonably good weather occurs, allowing cashew growers to produce more cashews per hectare. Show the effect this shock has on the market for cashews by shifting the demand curve, supply curve, or both Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther PRICE (Dollars perton) 12 18 Supply Demand QUANTITY (Thousands of tons) 24 30 Demand Supply

The graph shows an economy in macroeconomic equilibrium. Now, three things occur: The world economy goes into an expansion, domestic businesses expect future profits to rise, and the government increases its expenditure on goods and services as international tensions increase. On the graph, draw one new curve that shows the combined effect of the three events. Label it. Draw a point at the new macroeconomic equilibrium. >>> Draw only the objects specified in the question.

The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand for cashews. Suppose a stretch of unseasonably good weather occurs, allowing cashew growers to produce more cashews per hectare. Show the effect this shock has on the market for cashews by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE (Dollars perton) 30 24 18 2 6 0 12 36 Supply 24 QUANTITY (Thousands of tons) Demand 48 Total Revenue (Thousands of Dollars) 60 Demand 0 Supply A number of the growers are concerned about the price decrease initiated by the stretch of favorable weather conditions, as they believe it will lead to decreased revenue. Using elasticities, you will be able to determine whether this price change will lead to a rise or fall in total…

The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand for cashews. Suppose a stretch of unseasonably good weather occurs, allowing cashew growers to produce more cashews per hectare. Show the effect this shock has on the market for cashews by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE (Dollars per ton) 30 24 18 12 6 0 0 12 24 36 Demand QUANTITY (Thousands of tons) Supply 48 60 Demand Supply ? A number of the growers are concerned about the price decrease initiated by the stretch of favorable weather conditions, as they believe it will lead to decreased revenue. Using elasticities, you will be able to determine whether this price change will lead to a rise or fall in total revenue in this market.

The short-run equilibrium output level is ALL OTHER GOODS (Thousands of units) The following graph shows two production possibilities frontiers (PPFS) for the economy. The PPF closer to the origin (blue curve) is the economy's institutional PPF, and the PPF farther from the origin (purple curve) is the economy's physical PPF. 10 Place the grey point (star symbol) on one of the black points (plus symbol) to indicate the state of the economy when it is operating at the short-run equilibrium described above. 9 8 1 0 0 exists in the labor market of this economy. Physical PPF Institutional PPF 1 + + + 2 Two PPFs + + 3 4 5 6 7 GOOD X (Thousands of units) and the economy is operating In time, wages and costs of production will likely 8 9 10 As a result, State of Economy (?)

The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand for cashews. Suppose new gathering technology is invented, allowing growers to produce more crops using the same amount of resources. Show the effect this shock has on the market for cashews by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE(Dollars perton) 9 3 24 16 0 12 24 36 QUANTITY (Thousands of tons) Demand Supply 48 Total Revenue (Thousands of Dollars) 60 Demand - Supply Several growers are happy with this advancement in technology because now they can sell more crops, which they believe will lead to increases in revenue. Using elasticities, you will be able to determine whether this price change will lead to a rise or fall in total revenue in this…

The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand for cashews. Suppose new gathering technology is invented, allowing growers to produce more crops using the same amount of resources. Show the effect this shock has on the market for cashews by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE (Dollars per ton) 40 32 16 8 0 0 12 24 36 Demand QUANTITY (Thousands of tons) Supply 48 60 Demand Supply ?

Let us define "peak oil" as a point in time where the quantity of oil extracted and consumed (let's just assume these are the same) reaches a maximum and then starts to decline. Based on economic theory, (in other words, I'm not asking you to predict anything specific about the oil market in the real world, just a general theory question) should we expect this period of declining production to be accompanied by high and rising prices or by low/falling prices? Give a brief explanation using graphs where appropriate.

Suppose that an economy wants to boost available labor hours in order to increase aggregate supply. What is the best way to accomplish this?

Assume that the long-run aggregate supply curve is vertical at Y = 3.000 while the short-run aggregate supply curve is horizontal at P=1.0, . The aggregate demand curve is Y = 2(M / P) and M = 1,500. Suppose the aggregate demand function shifts to Y = (1.5)(M / P) . What are the short- run values of P and Y? Show the change in short and long- run equilibrium graphically . Describe the short- run and long- run effects of the change in demand .

The following graph illustrates the market for pistachios. It plots the monthly supply of pistachios and the monthly demand for pistachios. Suppose an increase in pests destroys a major portion of pistachio trees. Show the effect this shock has on the market for pistachios by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE (Dollars per ton) 40 32 24 co 8 0 0 8 16 24 Supply Demand QUANTITY (Thousands of tons) 32 40 Demand Supply One of the growers is pleased with the price increase caused by the pests because he believes it will lead to increased revenue. Using elasticities, you will be able to determine whether this price change will lead to a rise or fall in total revenue in this market. Using the midpoint method, the price elasticity of demand for pistachios between the…

Consider an economy that produces two goods, an agricultural good and a manufacturing good. An amount YA of the agricultural good can be produced using the following equation: YA = LA where LA is the amount of labor used in this sector. An amount of YM of the manufacturing good can be produced using the following equation: YM = KθLM 1-θ where K is capital stock and LM is the amount of labor used in such sector. So, this economy’s total output (i.e. GDP) is: Y = YA + YM. This economy has zero population growth rate (i.e. n = 0) and the depreciation rate is δ. The total number of workers in the economy is L and of course, L = LM + LA. Let P = LA/L. Furthermore, define: y = Y/L, k = K/L and c = C/L. As usual, we have: ∆k = sy – (δ+n)k. Please use the above information to derive the key equation for this version of Solow model. Show the steady state of the economy is a diagram with k as the x-axes. Label k* , y* and c* in your diagram.

Identify the relationship between the production possibility curve and long-run aggregate supply curve of an economy.

Solution Summary: The author explains the relationship between the production possibility curve and the long-run aggregate supply curve of an economy.

Identify the relationship between the production possibility curve and long-run aggregate supply curve of an economy.

Chapter 9 Solutions