Imagine that a country can produce just two things: goods and services. Assume that over a given period it could produce any of the following combinat
Imagine that a country can produce just two things: goods and services. Assume that over a given period it could produce any of the following combinations:
\r\n| \r\n Units of goods \r\n | \r\n\r\n 0 \r\n | \r\n\r\n 10 \r\n | \r\n\r\n 20 \r\n | \r\n\r\n 30 \r\n | \r\n\r\n 40 \r\n | \r\n\r\n 50 \r\n | \r\n\r\n 60 \r\n | \r\n\r\n 70 \r\n | \r\n\r\n 80 \r\n | \r\n\r\n 90 \r\n | \r\n\r\n 100 \r\n | \r\n
| \r\n Units of services \r\n | \r\n\r\n 80 \r\n | \r\n\r\n 79 \r\n | \r\n\r\n 77 \r\n | \r\n\r\n 74 \r\n | \r\n\r\n 70 \r\n | \r\n\r\n 65 \r\n | \r\n\r\n 58 \r\n | \r\n\r\n 48 \r\n | \r\n\r\n 35 \r\n | \r\n\r\n 19 \r\n | \r\n\r\n 0 \r\n | \r\n
(a) Draw the country’s production possibility curve.
\r\n(b) Assuming that the country is currently producing 40 units of goods and 70 units of services, what is the opportunity cost of producing another 10 units of goods?
\r\n(c) Explain how the figures illustrate the principle of increasing opportunity cost.
\r\n(d) Now assume that technical progress leads to a 10 per cent increase in the output of goods for any given amount of resources. Draw the new production possibility curve. How has the opportunity cost of producing extra units of services altered?
