Answer to Question #146227 in Microeconomics for Saba

Question

Assume a country produces haircuts and shirts with inputs of labour. The country has 1000 hours of labour available. A haircut requires ½ hour of labour, while a shirt requires 5 hours of labour.
a. Construct country’s production- possibility frontier.
b. The country is faced with massive unemployment. How will the PPF be impacted? Explain and indicate on graph.
c. The country discovers new technology and moves towards automation. Justify how this will impact the PPF for the economy. Also, indicate the same through the graph.

Answer 1

$$Solution$$

a) To construct the PPF, we should determine the maximum of each good that can be produced, with the available 1,000 labor hours. Here,

$Shirts=\frac{1000}{5}=200\\ Haircuts=\frac{1000}{0.5}=2000$

With the above information then the PPF curve can be drawn as below.

b) With massive unemployment, both the production of shirts and haircuts will suffer, this will make the curve shrinks inwards or move to the left as shown below.

c) The curve will shift outwards (green) with the implementation of newer technology, this will make producers produce more. This is depicted in the graph below.