Draw a Production Possibilities Frontier Showing Increasing Opportunity Cost of Hammers

question 80

Essay

Draw a production possibilities frontier showing increasing opportunity cost of hammers in terms of horseshoes.
a.On the graph, identify the area of feasible outcomes and the area of infeasible outcomes.
b.On the graph, label a point that is efficient and a point that is inefficient.
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 second graph, illustrate the effect of a new computerized assembly line in the production of hammers on this economy.

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Definitions:

Aggregate Demand

The overall call for goods and services in an economic setting, quantified at an established aggregate price level during a specific time span.

Government Purchases

Government purchases include spending on goods and services by the government that is part of the nation's gross domestic product (GDP).

Aggregate Demand

The total demand for all goods and services in an economy at different price levels, during a specific time period.

Government Purchases

Expenditures by government entities on goods and services that are directly consumed or invested to achieve public objectives, contributing to aggregate demand.