McConnell Campbell R., Brue Stanley L., Barbiero Thomas P. Microeconomics. Ninth Edition
Подождите немного. Документ загружается.
tion possibilities curves: one showing the situation where a better technique for pro-
ducing robots has been developed while the technology for producing pizzas is
unchanged, and the other illustrating an improved technology for pizzas while the
technology for producing robots remains constant.
PRESENT CHOICES AND FUTURE POSSIBILITIES
An economy’s current position on its production possibilities curve is a basic
determinant of the future location of that curve. Let’s designate the two axes of the
production possibilities curve as goods for the future and goods for the present, as in
Figure 2-5. Goods for the future are such things as capital goods, research and edu-
cation, and preventive medicine. They increase the quantity and quality of property
resources, enlarge the stock of technological information, and improve the quality
of human resources. As we have already seen, goods for the future, like industrial
robots, are the ingredients of economic growth. Goods for the present are pure con-
sumer goods, such as pizza, clothing, and soft drinks.
Now suppose there are two economies, Alta and Zorn, which are initially identi-
cal in every respect except one: Alta’s current choice of positions on its production
possibilities curve strongly favours present goods over future goods. Point A in Fig-
ure 2-5(a) indicates that choice. It is located quite far down the curve to the right,
indicating a high priority for goods for the present, at the expense of fewer goods
for the future. Zorn, in contrast, makes a current choice that stresses larger amounts
of future goods and smaller amounts of present goods, as shown by point Z in Fig-
ure 2-5(b).
Other things equal, we can expect the future production possibilities curve of
Zorn to be farther to the right than Alta’s curve. By currently choosing an output
more favourable to technological advances and to increases in the quantity and
quality of resources, Zorn will achieve greater economic growth than Alta. In terms
chapter two • the economic problem: scarcity, wants, and choices 39
FIGURE 2-5 AN ECONOMY’S PRESENT POSITION ON ITS
PRODUCTION POSSIBILITIES CURVE DETERMINES
THE CURVE’S FUTURE LOCATION
Goods for the future
Goods for the present
0
(a) Alta
Current
curve
Future
curve
Goods for the future
Goods for the present
0
(b) Zorn
Future
curve
Current
curve
A
Z
A nation’s current
choice favouring
“present goods,” as
made by Alta in (a),
will cause a modest
outward shift of the
curve in the future.
A nation’s current
choice favouring
“future goods,” as
made by Zorn in (b),
will result in a greater
outward shift of the
curve in the future.
of capital goods, Zorn is choosing to make larger current additions to its “national
factory”—to invest more of its current output—than Alta. The payoff from this
choice for Zorn is more rapid growth—greater future production capacity. The
opportunity cost is fewer consumer goods in the present for Zorn to enjoy. (See
Global Perspective 2.1.)
Is Zorn’s choice thus “better” than Alta’s? That, we cannot say. The different out-
comes simply reflect different preferences and priorities in the two countries. (Key
Question 10 and 11)
A Qualification: International Trade
Production possibilities analysis implies that a nation is limited to the combinations
of output indicated by its production possibilities curve. But we must modify this prin-
ciple when international specialization and trade exist.
You will see in later chapters that an economy can avoid, through international
specialization and trade, the output limits imposed by its domestic production pos-
sibilities curve. International specialization means directing domestic resources to out-
put that a nation is highly efficient at producing. International trade involves the
exchange of these goods for goods produced abroad. Specialization and trade
enable a nation to get more of a desired good at less sacrifice of some other good.
Rather than sacrifice three robots to get a third unit of pizza, as in Table 2-1, a nation
might be able to obtain the third unit of pizza by trading only two units of robots
for it. Specialization and trade have the same effect as having more and better
resources or discovering improved production techniques; both increase the quan-
tities of capital and consumer goods available to society.
Examples and Applications
There are many possible applications and examples relating to the production pos-
sibilities model. We will discuss just a few of them.
UNEMPLOYMENT AND PRODUCTIVE INEFFICIENCY
Almost all nations have at one point or another experienced widespread unem-
ployment of resources. That is, they have operated inside of their production pos-
sibilities curves. In the depths of the Great Depression of the 1930s, 20 percent of
Canada’s workers were unemployed and one-third of Canadian production capac-
ity was idle. In the last half of the 1990s, several countries (for example, Argentina,
Japan, Mexico, and South Korea) operated inside their production possibilities
curves, at least temporarily, because of substantial declines in economic activity.
40 Part One • An Introduction to Economics and the Economy
● Unemployment and the failure to achieve pro-
ductive efficiency cause an economy to operate
at a point inside its production possibilities curve.
● Increases in resource supplies, improvements
in resources quality, and technological advance
cause economic growth, which is depicted as an
outward shift of the production possibilities curve.
● Society’s present choice of capital and con-
sumer goods helps determine the future loca-
tion of its production possibilities curve.
● International specialization and trade enable a
nation to obtain more goods than its production
possibilities curve indicates.
Economies that experience substantial discrimination based on race, ethnicity,
and gender do not achieve productive efficiency and thus operate inside their pro-
duction possibilities curves. Because discrimination prevents those discriminated
against from obtaining jobs that best use their skills, society has less output than
otherwise. Eliminating discrimination would move such an economy from a point
inside of its production possibilities curve toward a point on its curve. Similarly,
economies in which labour usage and production methods are based on custom,
heredity, and caste, rather than on efficiency, operate well inside their production
possibilities curves.
TRADEOFFS AND OPPORTUNITY COSTS
Many current controversies illustrate the tradeoffs and opportunity costs indicated
in movements along a particular production possibilities curve. (Any two categories
of “output” can be placed on the axes of production possibilities curves.) Should
scenic land be used for logging and mining or preserved as wilderness? If the land
is used for logging and mining, the opportunity cost is the forgone benefits of
wilderness. If the land is used for wilderness, the opportunity cost is the lost value
of the wood and minerals that society forgoes.
Should society devote more resources to the criminal justice system (police,
courts, and prisons) or to education (teachers, books, and schools)? If society
devotes more resources to the criminal justice system, other things equal, the oppor-
tunity cost is forgone improvements in education. If more resources are allocated to
education, the opportunity cost is the forgone benefits from an improved criminal
justice system.
SHIFTS IN PRODUCTION POSSIBILITIES CURVES
Canada has recently experienced a spurt of new technologies relating to computers,
communications, and biotechnology. Technological advances have dropped the
prices of computers and greatly enhanced their speed. Cellular phones and the
Internet have increased communications capacity, enhancing production and
improving the efficiency of markets. Advances in biotechnology, specifically genetic
engineering, have resulted in important agricultural and medical discoveries. Many
chapter two • the economic problem: scarcity, wants, and choices 41
Investment and
economic growth,
selected countries
Nations that invest large por-
tions of their national output
tend to achieve high growth
rates, measured here by out-
put per person. Additional
capital goods make workers
more productive, which means
greater output per person.
2.1
4.0
U.K.
Belgium
Turkey
U.S.
Sweden
Denmark
Netherlands
France
Greece
Canada
Spain
Ireland
Iceland
Portugal
Finland
Norway
Japan
Luxembourg
Australia
Switzerland
New Zealand
Austria
Italy
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1816 20 22 24 26 28 30 32
Annual growth rate of real
national output per person (1970–1990)
Investment as share of national output
(average, 1970–1990)
Germany
Source: International Monetary Fund
Facing
Tradeoffs
economists believe that these new technologies are so significant that they are con-
tributing to faster-than-normal economic growth (faster rightward shifts of the pro-
duction possibilities curve).
In some circumstances a nation’s production possibilities curve can collapse
inward. For example, in the late 1990s Yugoslavia forces began to “ethnically cleanse”
Kosovo by driving out its Muslim residents. A decisive military response by Canada
and its allies eventually pushed Yugoslavia out of Kosovo. The military action also
devastated Yugoslavia’s economy. Allied bombing inflicted great physical damage on
Yugoslavia’s production facilities and its system of roads, bridges, and communica-
tion. Consequently, Yugoslavia’s production possibilities curve shifted inward.
Every society needs to develop an economic system—a particular set of institutional
arrangements and a coordinating mechanism—to respond to the economic problem.
Economic systems differ as to (1) who owns the factors of production and (2) the
method used to coordinate and direct economic activity. There are two general types
of economic systems: the market system and the command system.
The Market System
The private ownership of resources and the use of markets and prices to coordinate
and direct economic activity characterize the market system, or capitalism. In that
system each participant acts in his or her own self-interest; each individual or busi-
ness seeks to maximize its satisfaction or profit through its own decisions regarding
consumption or production. The system allows for the private ownership of capi-
tal, communicates through prices, and coordinates economic activity through mar-
kets—places where buyers and sellers come together. Goods and services are
produced and resources are supplied by whoever is willing and able to do so. The
result is competition among independently acting buyers and sellers of each prod-
uct and resource. Thus, economic decision making is widely dispersed.
In pure capitalism—or laissez-faire capitalism—government’s role is limited to
protection private property and establishing an environment appropriate to the
operation of the market system. The term laissez-faire means “let it be,” that is, keep
government from interfering with the economy. The idea is that such interference
will disturb the efficient working of the market system.
But in the capitalism practised in Canada and most other countries, government
plays a substantial role in the economy. It not only provides the rules for economic
activity but also promotes economic stability and growth, provides certain goods
and services that would otherwise be underproduced or not produced at all, and
modifies the distribution of income. The government, however, is not the dominant
player in deciding what to produce, how to produce it, and who will get it. These
decisions are determined by market forces.
The Command System
The alternative to the market system is the command system, also known as social-
ism or communism. In that system, government owns most property resources and
economic decision making occurs through a central economic plan. A government
central planning board determines nearly all the major decisions concerning the use
of resources, the composition and distribution of output, and the organization of
42 Part One • An Introduction to Economics and the Economy
economic
system
A par-
ticular set of institu-
tional arrangements
and a coordinating
mechanism for
solving the econo-
mizing problem.
market
system
An
economic system
in which property
resources are pri-
vately owned and
markets and prices
are used to direct
and coordinate eco-
nomic activities.
command
system
An
economic system
in which most prop-
erty resources are
owned by the gov-
ernment and eco-
nomic decisions are
made by a central
government body.
Economic Systems
production. The government owns most of the business firms, which produce
according to government directives. A central planning board determines produc-
tion goals for each enterprise and specifies the amount of resources to be allocated
to each enterprise so that it can reach its production goals. The division of output
among the population is centrally decided, and capital goods are allocated among
industries on the basis of the central planning board’s long-term priorities.
A pure command economy would rely exclusively on a central plan to allocate the
government-owned property resources. But, in reality, even the pre-eminent com-
mand economy—the Soviet Union—tolerated some private ownership and incor-
porated some markets before its demise in 1991. Recent reforms in Russia and most
of the eastern European nations have to one degree or another transformed their
command economies to market-oriented systems. China’s reforms have not gone as
far, but have reduced the reliance on central planning. Although there is still exten-
sive government ownership of resources and capital in China, it has increasingly
relied on free markets to organize and coordinate its economy. North Korea and
Cuba are the last remaining examples of largely centrally planned economies.
Because nearly all of the major nations now use the market system, we need to gain
a good understanding of how this system operates. Our goal in the remainder of this
chapter is to identify the market economy’s decision makers and major markets. In
Chapter 3 we will explain how prices are established in individual markets. Then
in Chapter 4 we will detail the characteristics of the market system and explain how
it addresses the economic problem.
As shown in Figure 2-6 (Key Graph), the market economy has two groups of
decision makers: households and businesses. It also has two broad markets: the
resource market and the product market
The upper half of the diagram represents the resource market: the place where
resources or the services of resource suppliers are bought and sold. In the sources market,
households sell resources and businesses purchases them. Households (that is, peo-
ple) own all resources either directly as workers or entrepreneurs or indirectly
through their ownership (through stocks) of business corporations. They sell their
resources to businesses, which buy them because they are necessary for producing
goods and services. The money that businesses pay for resources are costs to busi-
nesses but are flows of wage, rent, interest, and profit income to the households.
Resources therefore flow from households to businesses, and money flows from
businesses to households.
Next consider the lower part of the diagram that represents the product market:
the place where goods and services produced by businesses are bought and sold. In the prod-
uct market, businesses combine the resources they have obtained to produce and
sell goods and services. Households use the income they have received from the sale
of resources to buy goods and services. The monetary flow of consumer spending
on goods and services yields sales revenues for businesses.
The circular flow model shows the interrelated web of decision making and eco-
nomic activity involving businesses and households. Businesses and households are
both buyers and sellers. Businesses buy resources and sell products. Households buy
products and sell resources. As shown in Figure 2-6, there is a counterclockwise real
flow of resources and finished goods and services, and a clockwise money flow of
income and consumption expenditures. These flows are simultaneous and repetitive.
chapter two • the economic problem: scarcity, wants, and choices 43
The Circular Flow Model
resource
market
A mar-
ket in which house-
holds sell and firms
buy resources or
the services of
resources.
product
market
A mar-
ket in which prod-
ucts are sold by
firms and bought
by households.
circular
flow model
The flow of
resources from
households to
firms and of prod-
ucts from firms to
households. These
flows are accompa-
nied by reverse
flows of money
from firms to
households and
from households
to firms.
44 Part One • An Introduction to Economics and the Economy
G
o
o
d
s
a
n
d
s
e
r
v
i
c
e
s
R
e
v
e
n
u
e
G
o
o
d
s
a
n
d
s
e
r
v
i
c
e
s
C
o
n
s
u
m
p
t
i
o
n
e
x
p
e
n
d
i
t
u
r
e
s
M
o
n
e
y
i
n
c
o
m
e
(
w
a
g
e
s
,
r
e
n
t
s
,
i
n
t
e
r
e
s
t
,
p
r
o
f
i
t
s
)
p
r
e
n
e
u
r
i
a
l
a
b
i
l
i
t
y
C
o
s
t
s
R
e
s
o
u
r
c
e
s
BUSINESSES HOUSEHOLDS
PRODUCT
MARKET
RESOURCE
MARKET
L
a
b
o
u
r
,
l
a
n
d
,
c
a
p
i
t
a
l
,
e
n
t
r
e
-
• Households sell
• Firms buy
• Firms sell
• Households buy
• Buy resources
• Sell products
• Sell resources
• Buy products
Resources flow from
households to businesses
through the resource mar-
ket and products flow from
businesses to household
through the product mar-
ket. Opposite these real
flows are monetary flows.
Households receive
income from businesses
(their costs) through the
resource market and busi-
nesses receive revenue
from households (their
expenditures) through the
product market.
FIGURE 2-6 THE CIRCULAR FLOW DIAGRAM
Key Graph
Quick Quiz
1. The resource market is where:
a. households sell products and businesses buy products.
b. businesses sell resources and households sell products.
c. households sell resources and businesses buy resources (or the services of
resources).
d. businesses sell resources and households buy resources (or the services of
resources).
2. Which of the following would be determined in the product market?
a. a manager’s salary
b. the price of equipment used in a bottling plant
c. the price of 80 hectares of farmland
d. the price of a new pair of athletic shoes
3. In this circular flow diagram:
a. money flows counterclockwise.
b. resources flow counterclockwise.
c. goods and services flow clockwise.
d. households are on the selling side of the product market.
4. In this circular flow diagram:
a. households spend income in the product market.
b. firms sell resources to households.
c. households receive income through the product market.
d. households produce goods.
Answers:
1. c; 2. d; 3. b; 4. a
chapter two • the economic problem: scarcity, wants, and choices 45
One of the more remarkable
trends of the past half-century in
Canada has been the substantial
rise in the number of women
working in the paid workforce.
Today, nearly 70 percent of
women work full-time or part-
time in paid jobs, compared to
only 31 percent in 1965. There are
many reasons for this increase.
Women’s Rising Wage Rates
Over recent years, women have
greatly increased their productiv-
ity in the workplace, mostly by
becoming better educated and
professionally trained. As a re-
sult, they can earn higher wages.
Because those higher wages have
increased the opportunity costs—
the forgone wage earnings—of
staying at home, women have
substituted employment in the
labour market for more “expen-
sive” traditional home activities.
This substitution has been partic-
ularly pronounced among mar-
ried women.
Women’s higher wages and
longer hours away from home
have produced creative realloca-
tions of time and purchasing
patterns. Daycare services have
partly replaced personal child
care. Restaurants, take-home
meals, and pizza delivery often
substitute for traditional home
cooking. Convenience stores
and catalogue and Internet sales
have proliferated, as have lawn-
care and in-home cleaning serv-
ices. Microwave ovens, dish-
washers, automatic washers and
dryers, and other household
“capital goods” enhance domes-
tic productivity.
Expanded Job Access Greater
access to jobs is a second factor
increasing the employment of
women. Service industries—
teaching, nursing, and clerical
work, for instance—that tradi-
tionally have employed mainly
women have expanded in the
past several decades. Also, pop-
ulation in general has shifted
from farms and rural regions to
urban areas, where jobs for
women are more abundant and
more geographically accessible.
The decline in the average
length of the workweek and the
increased availability of part-
time jobs have also made it eas-
ier for women to combine labour
market employment with child-
rearing and household activities.
Changing Preferences and Atti-
tudes Women collectively have
changed their preferences from
household activities to employ-
ment in the labour market. Many
find personal fulfillment in jobs,
careers, and earnings, as evi-
denced by the huge influx of
women into law, medicine, busi-
ness, and other professions.
More broadly, most industrial
societies now widely accept and
encourage labour force partici-
pation by women, including
those with very young children.
Today about 60 percent of Cana-
dian mothers with preschool
children participate in the labour
force, compared to only 30 per-
cent in 1970. More than half
return to work before their
youngest child has reached the
age of two.
Declining Birthrates There were
3.8 lifetime births per woman in
1957 at the peak of the baby
boom. Today the number is less
than 2. This marked decline in
the size of the typical family, the
result of changing lifestyles and
the widespread availability of
birth control, has freed up time
for greater labour-force partici-
pation by women. Not only do
women now have fewer chil-
dren; their children are spaced
closer together in age. Thus
women who leave their jobs dur-
ing their children’s early years
can return to the labour force
sooner. Higher wage rates have
also been at work. On average,
women with relatively high
wage earnings have fewer chil-
dren than women with lower
earnings. The opportunity cost
of children—the income sacri-
ficed by not being employed—
rises as wage earnings rise. In
the language of economics, the
higher “price” associated with
children has reduced the “quan-
tity” of children demanded.
WOMEN AND EXPANDED
PRODUCTION POSSIBILITIES
A large increase in the number of employed women has
shifted the U.S. production possibilities curve outward.
46 Part One • An Introduction to Economics and the Economy
Rising Divorce Rates Marital in-
stability, as evidenced by high
divorce rates, may have moti-
vated many women to enter and
remain in the labour market. Be-
cause alimony and child support
payments are often erratic or
non-existent, the economic im-
pact of divorce on non-working
women may be disastrous. Most
non-working women enter the
labour force for the first time
following divorce. And many
married women—perhaps even
women contemplating marriage
—may have joined the labour
force to protect themselves
against the financial difficulties
of potential divorce.
Slower growth of male wages
The earnings of many low-wage
and middle-wage male workers
grew slowly or even fell in
Canada over the past three
decades. Many wives may have
entered the labour force to en-
sure the rise of household living
standards. The median income
of couples with children grew 25
percent between 1969 and 1996.
Without the mothers’ income,
that growth would have been
only 2 percent. Couples of all in-
come levels may be concerned
about their family income com-
pared to other families. So, the
entry of some women into the
labour force may have encour-
aged still other women to enter
in order to maintain their fami-
lies’ relative standard of living.
Taken together, these factors
have produced a rapid rise in the
presence of women workers in
Canada. This increase in the quan-
tity of resources has helped push
the Canadian production possibil-
ities curve outward. In other
words, it has contributed greatly
to Canada’s economic growth.
chapter summary
1. Economics is grounded on two basic facts:
(a) wants are virtually unlimited; (b) resources
are scarce.
2. Resources may be classified as property re-
sources—raw materials and capital—or as
human resources—labour and entrepreneur-
ial ability. These resources constitute the fac-
tors of production.
3. Economics is concerned with the problem of
using scarce resources to produce the goods
and services that satisfy the material wants of
society. Both full employment and the effi-
cient use of available resources are essential
to maximize want satisfaction.
4. Efficient use of resources consists of produc-
tive efficiency (producing all output combina-
tions in the least costly way) and allocative
efficiency (producing the specific output mix
most desired by society).
5. An economy that is achieving full employ-
ment and productive efficiency—that is oper-
ating on its production possibilities curve—
must sacrifice the output of some types of
goods and services in order to increase the
production of others. Because resources are
not equally productive in all possible uses,
shifting resources from one use to another
brings the law of increasing opportunity costs
into play. The production of additional units of
one product requires the sacrifice of increas-
ing amounts of the other product.
6. Allocative efficiency means operating at the
optimal point on the production possibilities
curve. That point represents the highest-
valued mix of goods and is determined by
expanding the production of each good until
its marginal benefit (MB) equals its marginal
cost (MC).
7. Over time, technological advances and
increases in the quantity and quality of
resources enable the economy to produce
more of all goods and services—that is, to
experience economic growth. Society’s
choice as to the mix of consumer goods and
capital goods in current output is a major
determinant of the future location of the pro-
duction possibilities curve and thus of eco-
nomic growth.
8. The market system and the command system
are the two broad types of economic systems
terms and concepts
chapter two • the economic problem: scarcity, wants, and choices 47
used to address the economic problem. In
the market system (or capitalism) private indi-
viduals own most resources and markets
coordinate most economic activity. In the
command system (or socialism or commu-
nism), government owns most resources and
central planners coordinate most economic
activity.
9. The circular flow model locates the product
and resource markets and shows the major
real and money flows between businesses
and households. Businesses are on the buy-
ing side of the resource market and the selling
side of the product market. Households are on
the selling side of the resource market and the
buying side of the product market.
allocative efficiency, p. 30
capital, p. 28
capital goods, p. 31
circular flow model, p. 43
command system, p. 42
consumer goods, p. 31
economic growth, p. 38
economic problem, p. 27
economic resources, p. 28
economic system, p. 42
entrepreneurial ability, p. 28
factors of production, p. 29
full employment, p. 29
full production, p. 30
investment, p. 28
labour, p. 28
land, p. 28
law of increasing opportunity
costs, p. 34
market system, p. 42
opportunity cost, p. 32
product market, p. 43
production possibilities curve,
p. 32
production possibilities table,
p. 31
productive efficiency, p. 30
resource market, p. 43
utility, p. 27
study questions
1. Explain this statement: “If resources were
unlimited and were freely available, there
would be no subject called economics.”
2. Comment on the following statement from a
newspaper article: “Our junior high school
serves a splendid hot meal for $1 without
costing the taxpayers anything, thanks in
part to a government subsidy.”
3. Critically analyze: “Wants aren’t insatiable. I
can prove it. I get all the coffee I want to
drink every morning at breakfast.” Explain:
“Goods and services are scarce because
resources are scarce.” Analyze: “It is the
nature of all economic problems that
absolute solutions are denied to us.”
4. What are economic resources? What are the
major functions of the entrepreneur?
5.
KEY QUESTION Why is the problem
of unemployment part of the subject matter
of economics? Distinguish between produc-
tive efficiency and allocative efficiency. Give
an illustration of achieving productive, but
not allocative, efficiency.
6.
KEY QUESTION Here is a production
possibilities table for war goods and civilian
goods:
PRODUCTION
ALTERNATIVES
Type of production A B C D E
Automobiles 02468
Rockets 30 27 21 12 0
a. Show these data graphically. Upon what
specific assumptions is this production
possibilities curve based?
b. If the economy is at point C, what is the
cost of one more automobile? One more
rocket? Explain how the production pos-
sibilities curve reflects the law of increas-
ing opportunity costs.
c. What must the economy do to operate at
some point on the production possibili-
ties curve?
7. What is the opportunity cost of attending
college or university? In 1999 nearly 80 per-
cent of Canadians with post-secondary edu-
cation held jobs, whereas only about 40
percent of those who did not finish high
school held jobs. How might this difference
relate to opportunity costs?
8. Suppose you arrive at a store expecting to
pay $100 for an item but learn that a store
two kilometres away is charging $50 for it.
48 Part One • An Introduction to Economics and the Economy
Would you drive there and buy it? How
does your decision benefit you? What is the
opportunity cost of your decision? Now sup-
pose you arrive at a store expecting to pay
$6000 for an item but discover that it costs
$5950 at the other store. Do you make the
same decision as before? Perhaps surpris-
ingly, you should! Explain why.
9.
KEY QUESTION Specify and explain
the shapes of the marginal-benefit and mar-
ginal-cost curves. How are these curves used
to determine the optimal allocation of re-
sources to a particular product? If current
output is such that marginal cost exceeds
marginal benefit, should more or fewer re-
sources be allocated to this product? Explain.
10.
KEY QUESTION Label point G inside
the production possibilities curve you drew
in question 6. What does it indicate? Label
point H outside the curve. What does that
point indicate? What must occur before the
economy can attain the level of production
shown by point H?
11.
KEY QUESTION
Referring again to
question 6, suppose improvement occurs in the
technology of producing rockets but not in the
technology of producing automobiles. Draw
the new production possibilities curve. Now
assume that a technological advance occurs in
producing automobiles but not in producing
rockets. Draw the new production possibilities
curve. Now draw a production possibilities
curve that reflects technological improvement
in the production of both products.
12. Explain how, if at all, each of the following
events affects the location of the production
possibilities curve:
a. Standardized examination scores of high
school, university, and college students
decline.
b. The unemployment rate falls from 9 to 6
percent of the labour force.
c. Defence spending is reduced to allow gov-
ernment to spend more on health care.
d. A new technique improves the efficiency
of extracting copper from ore.
13. Explain: “Affluence tomorrow requires sacri-
fice today.”
14. Suppose that, based on a nation’s produc-
tion possibilities curve, an economy must
sacrifice 10,000 pizzas domestically to get
the one additional industrial robot it desires,
but that it can get the robot from another
country in exchange for 9000 pizzas. Relate
this information to the following statement:
“Through international specialization and
trade, a nation can reduce its opportunity
cost of obtaining goods and thus ‘move out-
side its production possibilities curve.’ ”
15.
Contrast how a market system and a command
economy respond to the economic problem.
16. Distinguish between the resource market
and product market in the circular flow
model. In what way are businesses and
households both sellers and buyers in this
model? What are the flows in the circular
flow model?
17. (Last Word) Which two of the six reasons
listed in the Last Word do you think are
the most important in explaining the rise in
participation of women in the workplace?
Explain your reasoning.
internet application questions
1. More Labour Resources—What is the Evi-
dence for Canada and France? Go to the
U.S. Bureau of Labor Statistic’s Web site
www
.bls.gov/ and click Data and then Most
Requested Series. Click International Labor
Statistics and retrieve Canadian employment
data for the period of the last 10 years. How
many more workers were there at the end of
the 10-year period than at the beginning?
Next find the total employment growth of
Italy over the last 10 years. In which of the
two countries did “more labour resources”
have the greatest impact on the nation’s pro-
duction possibilities curve over the 10 years?
2. Relative Size of the Military—Who’s Incur-
ring the Largest Opportunity Cost? To obtain
military goods, a nation must sacrifice civil-
ian goods. Of course, that sacrifice may be
worthwhile in terms of national defence and
protection of national interests. Go to the
U.S. Central Intelligence Agencies Web
site www
.odci.gov/cia/publications/factbook/
country.html to determine the amount of
military expenditures and military expendi-
tures as a percentage of GDP, for each of the
following five nations: Canada, Japan, North
Korea, Russia, and the United States. Who is
bearing the greatest opportunity costs?