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Chapter 2: Q 2.4 (page 27)

Explain why the economy faces a trade-off between consumption goods and capital goods.

Short Answer

Expert verified

Because the opportunity cost of making a consumer good will lead to a loss in the making of capital goods and viceversa.

Step by step solution

01

Step 1. Definition of Trade-off.

Trade-off refers to the use of the resources for alternative use.

02

Step 2. Reason.

The economy faces a trade-off between consumption goods and capital goods because the production of capital goods now will be used as resources for the production of consumer goods later. The fewer goods now the more goods in the future.

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Most popular questions from this chapter

Construct a production possibilities curve for a nation facing increasing opportunity costs for producing food and video games. Show how the PPC

changes have given the following events.

(a) A new and better fertilizer is invented.

(b) Immigration occurs, and immigrants’ labor can be employed in both the agricultural sector and the video game sector.

(c) A new programming language is invented that is less costly to code and is more memory-efficient, enabling the use of smaller game cartridges.

(d) A heat wave and drought result in a 10 percent decrease in usable farmland.

In response to Senator Creighton’s statement reported in Problem 2-10, Senator Long replies, “We must remain at our current production combination if we want to be able to produce more consumption goods in the future.” Of the labeled points on the diagram, which one could depict the future production combination Senator Long has in mind?

Define opportunity cost. What is your opportunity cost of attending a class at 11:00 A.M.? How does it differ from your opportunity cost of attending a class at 8:00 A.M.?

Could the U.S. Navy expand its production of both ships and weapons after switching from missiles to rail-gun weapons? Explain your reasoning.

Country A and country B produce the same consumption goods and capital goods and currently have identical production possibilities curves. They also have the same resources at present, and they have access to the same technology.

a. At present, does either country have a comparative advantage in producing capital goods? Consumption goods?

b. Currently, country A has chosen to produce more consumption goods, compared with country B. Other things being equal, which country will experience the larger outward shift of its PPC during the next year?
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