Andrew Davis, Numerade Educator

02:37

Principles of Economics

Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter."
a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity
cost, explain why it most likely has a bowed-out shape.
b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but
inefficient.
c. Imagine that the society has two political parties, called the Hawks (who want a strong military)
and the Doves (who want a smaller military). Show a point on your production possibilities
frontier that the Hawks might choose and a point that the Doves might choose.
d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both
the Hawks and the Doves reduce their desired production of guns by the same amount. Which
party would get the bigger "peace dividend," measured by the increase in butter production?
Explain.

Chapter 2: Thinking Like an Economist