Assignment:
1. Consider the PPC for the U.S. economy for civilian goods and services (such as food, education, and entertainment) and military goods and services (such as weapons). Both types of output are produced using capital (machines) and labor.
a. Draw the production possibilities curve (PPC) for the U.S. economy based on this categorization, with military goods and services on the horizontal axis and civilian goods and services on the vertical axis. Explain in words what the following represent: the point where the PPC intersects the vertical axis; the point where the PPC intersects the horizontal axis; the slope of the PPC at a given point. Why is the PPC for the U.S. economy likely to be bowed out?
b. Suppose that the aging of the population means that fewer people are available to work. How, if at all, would this development show up in the PPC diagram?
c. Suppose there is technological change that improves our ability to produce civilian output, but has no effect on the productivity of capital and labor in producing military output. How, if at all, would this development show up in the PPC diagram?
d. Suppose that an attack from outer space has two effects: it destroys many factories (making both military and civilian goods), and it causes us to shift our production so that the total production of military goods and services is higher than before the attack. How would this show up (if at all) in the PPC diagram?