Answer to Question #85680 in Microeconomics for mariam t

Question

Given the 2019 PPF for consumption goods and capital goods shown in the left-hand graph below, consider points A and B on PPF2019. a) Which point would most likely result in a higher current (2019) standard of living, point A with C1 units of consumption goods and K1 units of capital goods, or point B with C2 units of consumption goods and K2 units of capital goods? Explain briefly. b) In the right-hand graph, illustrate a PPF for 2029 assuming that the economy is at point A in 2019; label this PPF as PPFA. Illustrate a second PPF for 2029 assuming that the economy is at point B in 2019; label this second PPF as PPFB. Does PPFA lie everywhere inside or outside PPFB? Explain.


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Answer 1

a) It is impossible to say which point would most likely result in a higher current (2019) standard of living, but it should be the point which is higher (above the other point). b) PPFA lie inside PPFB, if point A is below point B