Answer to Question #146773 in Microeconomics for hadiqa khan

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’sproduction- possibility frontier. (2 marks)

b. The country is faced with massive unemployment. How will the PPF be impacted? Explain and indicate on graph.( 1mark)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. (1mark)

Answer 1

a. The max shirts $= \frac{1000}{5} = 200$

The max haircuts $= \frac{1000 }{ 0.5} = 2000$

Fig. A

b. The unemployment will lead to a loss in production for both the goods in the economy, this will make the curve shift leftwards with a lower max number of haircuts and shirts

Fig. B

c. This will have the opposite effect than that in b, the new technology will reduce the cost in production making producers produce more of each good in the economy, this will shift the PPC curve to the right.

Fig. C