lectur12-page37

lectur12-page37 - by the economy to maintain the economy at...

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37 $ Consumer Goods $ Capital Goods Pt. A Pt. B How will the present position on this production possibilities curve affect the future postion of the $AG vs. $Non-AG PPC? What if the current position is A? Qty needed to maintain Economy In the diagram above, you see the dollar value of consumer goods on the y- axis and the dollar value of capital goods on the x-axis. We create a new production possibilities curve illustrating the trade-off between consumer goods and capital goods. Point A on this PPC illustrates the production of a large quantity of consumer goods and a small quantity of capital goods. Point B illustrates just the opposite. Notice the “hash mark” on the x-axis. The “hash mark” represents the quantity of capital goods that need to be produced
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Unformatted text preview: by the economy to maintain the economy at its current production level. We know that capital wears out and becomes obsolete so that it must eventually be replaced. To maintain the economy at its current production levels, we must produce enough capital to replace what capital wears out. Point A does not allow for the production of enough capital to maintain the economy. Point B produces enough capital to replace what capital wears out, and more to spare. Point B adds to our capital stock and increases the quantity of one of the factors of production, thus allowing the economy additional resources by which to grow....
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