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Week 04, Day 1 - Assignment 1 Solutions

# Week 04, Day 1 - Assignment 1 Solutions - ASSIGNMENT#1...

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ASSIGNMENT #1 SOLUTIONS 1. a) When an economy shifts some of its resources from the gadgets industry to the widgets industry, the production possibilities frontier (PPF) does not change. There is a movement from one point (point A in Graph 1) to another point (point B) where the production of gadgets is lower and the production of widgets is higher. b) When an economy experiences unemployment, it is producing below its PPF (point A in Graph 2). When unemployment declines, the economy moves closer to the PPF (point B). It is possible for point B to be on the PPF but the PPF does not shift. c) When the population of the economy increases due to immigration, there are more labour resources and it is possible for the economy to produce more. As a result, the PPF shifts outward. See Graph 3. d) When a technological advancement in gadget production occurs, the economy’s PPF shifts outward. However, the maximum production of widgets does not change since the technological advancement occurs in the gadget industry. Therefore, the point where the new PPF intersects the widget axis is the same point as the point where the old PPF intersects the widget axis. See Graph 4. Graph 1 Gadgets Widgets Graph 2 Gadgets Widgets Graph 3 Gadgets

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Widgets Graph 4 Gadgets Widgets 2. The PPF shows combinations of widgets and gadgets that the economy can produce when the 5 workers are fully and efficiently employed. To use the 5 workers efficiently, you need to determine which ways of using the 5 workers are efficient by considering the relative abilities of the workers. There are many ways to use the 5 workers. However, not all of these ways result in the efficient use of resources.
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