Question

Part 1 Below is a production possibilities table for consumer goods (butter) and capital goods (guns).

Production Possibilities
Type of Production	Production Alternative A	Production Alternative B	Production Alternative C	Production Alternative D	Production Alternative E	Production Alternative F	Production Alternative G
Butter	0	1	2	3	4	5	6
Guns	14	13	11	9	7	4	0

Graph the data provided in the table using Excel. (Hints: Type your data into an Excel spreadsheet. With your mouse, highlight the data only. Go to insert. Click on scatter. Click on smooth lines chart. Select the line chart. Plot data drawing line.)

Once you have graphed the data, please copy and paste your graph into a Word document so you can complete the rest of the assessment.

Based on the graph you created, complete the following:

·        Analyze the graphed data to develop assumptions, referencing the possibility curve.

o   Identify the specific assumptions that underlie the production possibilities curve.

o   Determine the cost of more butter, if the economy is at point C. What would be the cost of producing more guns? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs?

o   Suppose this hypothetical economy were producing only 1 item of butter and 10 guns, and this was depicted by this production possibilities table and curve. What conclusions could you draw about this economy's resource utilization?

o   Determine whether this economy is able to produce outside its current production possibilities. How might technological changes affect the production possibilities curve? How can international trade allow consumption above its production possibilities curve?

Answer 1

This is my answer

Opportunity cost is the value of next best alternative foregone. It shows how much units of guns producer has to sacrifice to produce one more unit of butter. To increase production of butter from 1 unit to 2 units, producer has to sacrifice 2 (13 - 11) units of guns.

The basic problem of economics is scarcity in which human wants are unlimited and resources are scarce. By using opportunity cost we are concerned with the optimal use and distribution of these scarce resources.