Figure: Guns and Butter Guns (per period) 18 16 12 8 4 0 A Reference: Ref 2-2 4 8 B 12 Production possibility frontier E F H 16 18 20 Butter (per period) (Figure: Guns and Butter) Look at the figure Guns and Butter. Suppose the economy produced 8 guns and 12 pounds of butter per period. O This is a possible choice but is inefficient. This combination invalidates the notion of increasing opportunity cost. The economy is still efficient but does not buy as much as it could. Something must be done to reduce the amount of employment.

Figure: Guns and Butter Guns (per period) 18 16 12 8 4 0 A Reference: Ref 2-2 4 8 B 12 Production possibility frontier E F H 16 18 20 Butter (per period) (Figure: Guns and Butter) Look at the figure Guns and Butter. Suppose the economy produced 8 guns and 12 pounds of butter per period. O This is a possible choice but is inefficient. This combination invalidates the notion of increasing opportunity cost. The economy is still efficient but does not buy as much as it could. Something must be done to reduce the amount of employment.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Beer Beer 20 10 0 1313 10 0 10 20 30 Pizza West Lothian 10 20 Select one: East Lothian Pizza Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves suggest that the terms of trade are: a. 1.5 beers for 1 pizza. Ob. 1 beer for 2 pizzas. c. 2 beers for 1 pizza. Od. 1 beer for 1.5 pizzas.
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