Answer to Question #316508 in Macroeconomics for jane

Question

The first principle of economics discussed in Chapter 1 of Mankiw’s book is that

people face trade-offs. Use a production possibilities frontier to illustrate society’s trade-

off between two “goods”—a clean environment and the quantity of industrial output.

What do you suppose determines the shape and position of the frontier? Show what

happens to the frontier if engineers develop a new way of producing electricity that emits

fewer pollutants.

Answer 1

Given;

There are two goods in the economy:-

1) a clean environment

2) Quantity of industrial output.

Production possibility curve illustrating society's trade-off between two-"goods":-

society's trade-off between two "goods"

The form of the production possibility curve is determined by the clean environment's opportunity cost in terms of industrial output. The shape of the PPF is governed by how expensive it is to keep a clean environment in terms of industrial output productivity.

If engineers create a new method of producing power that emits less pollutants, it will be less expensive to clean up the environment. This means that the economy will have a cleaner environment at all levels of industrial activity than before. As a result, the introduction of new technology will result in an outward shift in one end of the PPF, while the other end will remain unchanged.