Phil Martinez, Lane Community College
ASSIGNMENT 2: PRODUCTION POSSIBILITIES
Perhaps the best and most
famous guns vs butter production possibilites analysis was given in a
speech to the American Society of Newspaper Editors on April 16, 1953,
by President (and Five Star General) Dwight D. Eisenhower when he
stated:
signifies in the final sense,
a theft from those who hunger and are not fed,
those who are cold and not clothed.
This world in arms is not spending money alone.
It is spending the sweat of its laborers, the genius of its scientists,
the hopes of its children ...
This is not a way of life at all in any true sense.
Under the cloud of threatening war,
it is humanity hanging from a cross of iron.
Instructions:Answer all of the questions below. You must label each graph.Always graph quantity along the horizontal axis.This assignment is easier to understand if you use graph paper.
1. The following is the production possibilities table for war goods and civilian goods:
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Wheat (million tons) |
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Missiles |
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a. Graph the data above. Put wheat on the verticle axis and missiles on the horizontal axis.b. If you are at point A, how much wheat can be gained from giving up 1 missile?
c. If you are at point D, how much wheat can be gained from giving up 1 missile?
d. Why are the answers to b and c above different, i.e. why is the graph curved outward (concave)?
e. Suppose a new technology was increasing the efficiency of wheat production, with no application to missile production. Illustrate on the above graph how we would represent this change in production possibilities.
f. Suppose that a drought resulted in a 50% reduction in wheat output. Redraw the original Production Possibility Frontier graph and illustrate how this change would be represented.
g. Suppose a "baby-boom" generation comes of working age all at one time and work equally well in wheat production and missile production. Redraw the original Production Possibility Frontier graph and illustrate how this change would be represented.
h. Suppose this society enters a war. Workers are pulled out of producing wheat and instead are used to produce guns. Redraw the original Production Possibility Frontier graph and illustrate how this change would be represented.
2. Graph the trade-off between salmon and timber.
Illustrate and explain the Law of Decreasing
Returns.
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