Chapter 2, Problem 7QFR

Imagine a society that produces military goodsand consumer goods, which we’ll call “guns”and “butter.”a. Draw a production possibilities frontier forguns and butter. Using the concept of opportunitycost, explain why it most likely has abowed-out shape.

Draw an example of a production possibilities frontier for Robinson Crusoe, a shipwrecked sailor who spends his time gathering coconuts and catching fish. Does this frontier limit Crusoe's concumption of coconuts and fish if he lives by himself? Does he face the same limits if he can trade with natives on the island?

Imagine a society that produces military goods and consumer goods, which we’ll call “guns” and “butter.” Draw a production possibilities frontier for guns and butter. Explain why it most likely has a bowed out shape. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. 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 the Doves might choose. 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.