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Construct a production possibilities curve for a hypothetical country. Put public capital goods per year on the vertical axis and consumer goods per year on the horizontal axis. Not shown directly in your graph, assume that this country produces just enough private capital per year to replace its depreciated capital. Assume further that this country is without public capital and is operating at point A , where consumer goods are at a maximum. Based on the above research and using a production possibilities curve, show and explain what happens to this country’s private capital, production possibilities curve, and standard of living if it increases its output of public capital.

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Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040

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BuyFindarrow_forward

Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter 2.7, Problem 1GE
Textbook Problem
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Construct a production possibilities curve for a hypothetical country. Put public capital goods per year on the vertical axis and consumer goods per year on the horizontal axis. Not shown directly in your graph, assume that this country produces just enough private capital per year to replace its depreciated capital. Assume further that this country is without public capital and is operating at point A, where consumer goods are at a maximum. Based on the above research and using a production possibilities curve, show and explain what happens to this country’s private capital, production possibilities curve, and standard of living if it increases its output of public capital.

To determine

The production possibility curve.

Explanation of Solution

Figure 1 shows the production possibilities of producing public goods and consumer goods as follows:

The horizontal axis of Figure 1 measures the quantity of consumer goods produced and the vertical axis measures the quantity of public capital goods. The initial production possibility curve is indicated by bowed-out curve PPC1. Point A in the PPC1 indicates the initial point of production. At this point, there is no economic growth due to the reason that the private capital just replaces the depreciated capital which is used in the production of consumer goods...

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