Question

Economic Problem

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Read the following scenarios and answer the questions within them:

Scenario 1: In Alaska, there is a piece of land on which rare and endangered species of wildlife live. There is also crude oil on the same piece of land. Use the production possibilities frontier model to explain the dilemma posed. Expound how the production possibilities frontier model can be used to solve the Alaskan problem.

Scenario 2: Some people believe that the U.S. unemployment rate increases due to the U.S. international trade with other countries. They think that if the President has all the daily necessities made in the U.S. and make Americans only buy the goods produced in America, the unemployment rate will decrease and people will have more job opportunities. Do you agree with this statement? Why or Why not?

Answer 1

The above graph shows a Production possibility frontier of Alaska on the X axis we have crude oil production and on the Y-axis, we have Wildlife. (The number given are imaginary only used for explanation and can be ignored).

As per the graph, We can have 4 units of wildlife and zero crude oil production that point is marked as "J" or we can move further the pp curve and have 3 units of wildlife and 10 units of crude oil marked as "K". Similarly, as we move ahead and go on increasing the production of Crude oil we lose wildlife. Point N is another extreme where we only have crude oil production and zero wildlife left in Alaska.

Scenario 2: No, I don't agree with the statement that if we start buying only American products unemployment will decrease in America.

America is a capital-rich and labor starved nation and they mostly export capital-intensive goods and import labor-intensive commodities. The capital-intensive goods earn more profit and have resulted in the USA having several multinational giants like Apple, Google, Microsoft and many more. If the people living in the US stop buying the products manufactured in the outside world the people in those countries will retaliate and they might also stop buying goods produced in the US. This will increase employment in manufacturing of the product which the US imports from other countries but will cause unemployment in those goods which the US exports and the net effect will be same. We will end up employing some people in some sector and unemploying other in another sector and unemployment level remains the same.