Question

3. a) How would economic contraction brought about by Covid – 19 slowdown be represented using production possibilities curve? b) Repeat a) for improved technology which results in increased productivity

4.

1. Good                    Quantity              Price in 1999                     Price in 2000

X                            10                          $5                                         $6

Y                            20                          $10                                      $10

Z                            5                            $6                                         $10

Assume year 2000 is the base year.

1. Calculate the market basket value for each year. What is the consumer price index in 1999?
2. What is the inflation rate between 1999 and 2000?

Show all calculations please.

2. India has a higher GDP than Austria. However, Austria has a higher GDP/Capita than India. Which of the two indicators represent a higher quality of life? Why?

Answer 1

3.a) The production possibility curve shows the maximum possible output of goods (2 goods in 2-D) that can be produced by the economy given its resources (labor, capital, land). The Covid-19 pandemic has decreased the amount of labor available for work as people are under lockdown and quarantine. This huge plunge in labor supply will decrease production possibility for the nation. The PPC will shift inwards. In the diagram PPF shifts from AB to A'B'. This would be true as both goods X and Y would be produced less because labor is required for production of every good.

b) When there is an improved technology in the economy, this improves the quality of goods being produced and at the same time requires lesser time to produce. This improves the production possibilities of the nation. The PPC shifts outwards. In the diagram PPC shifts from DE to D'E'. I have made a parallal shift assuming that technology improvement improves production for other goods in general. For e.g a improvement to 5G from 4G will improve production of multiple goods and services (think of the ways it would)