Draw a Production Possibilities Frontier Showing Increasing Opportunity Cost for Hammers

question 48

Essay

Draw a production possibilities frontier showing increasing opportunity cost for hammers and horseshoes.
a. On the graph, identify the area of feasible outcomes and the area of unfeasible outcomes.
b. On the graph, label a point that is efficient as point E and a point that is inefficient as point I.
c. On the graph, illustrate the effect of the discovery of a new vein of iron ore, a resource needed to make both horseshoes and hammers, on this economy.
d. On a separate graph for hammers and horseshoes, illustrate the effect a new computerized assembly line in the production of hammers would have.

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Definitions:

Minimum Wages

The lowest legal hourly pay that workers can be paid, set by government legislation.

Equilibrium Wage

The wage rate at which the quantity of labor demanded by employers equals the quantity of labor supplied by workers.

Prevailing Wage

The average wage paid to employees in a specific area or industry, often determined for purposes of setting minimum wage levels on government contracts.

Black Market Activities

Transactions that take place outside of officially sanctioned channels, often illegal or unregulated by the government.