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Chapter 2: Q 14 (page 46)

Like physical capital, human capital produced in the present can be applied to the production of future goods and services. Consider the table in Problem 2-13, and suppose that the nation鈥檚 residents are trying to choose between combination C and combination F. Other things being equal, will the future production possibilities curve for this nation be located farther outward if the nation chooses combination F instead of combination C? Explain.

Short Answer

Expert verified

No, the production possibilities curve for the nation will not be located farther outward if the nation chooses combination F instead of combination C.

Step by step solution

01

Step 1. Given Information.

The data for the units of consumer goods and units of human capital is as follows:

Production CombinationsUnits of Consumption GoodsUnits of Human Capital
A0100
B1097
C2090
D3075
E4055
F5030
G600
02

Step 2. Reason.

No, the production possibilities curve for the nation will not be located farther outward if the nation chooses combination F instead of combination C. The combination C produces 90 units of human capital which are farther to the right than combination F which produces 30 units of human capital.

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Most popular questions from this chapter

Recently, a woman named Mary Krawiec attended an auction in Troy, New York. At the auction, a bank was seeking to sell a foreclosed property: a large Victorian house suffering from years of neglect in a neighborhood in which many properties had been on the market for years yet remained unsold. Her \(10 offer was the highest bid in the auction, and she handed over a \)10 bill for a title to ownership. Once she acquired the house, however, she became responsible for all taxes on the property and for an overdue water bill of \(2,000. In addition, to make the house habitable, she and her husband devoted months of time and unpaid labor to renovating the property. In the process, they incurred explicit expenses totaling \)65,000. Why do you suppose that the bank was willing to sell the house to Ms. Krawiec for only $10? (Hint: Contemplate the bank鈥檚 expected gain, net of all explicit and opportunity costs, if it had attempted to make the house habitable.)

A nation鈥檚 residents can allocate their scarce resources either to producing consumer goods or to producing human capital鈥攖hat is, providing themselves with training and education. The following table displays the production possibilities for this nation:

Production CombinationUnits of Consumer GoodsUnits of Human Capital
A0100
B1097
C2090
D3075
E4055
F5030
G600

(a) Suppose that the nation鈥檚 residents currently produce combination A. What is the opportunity cost of increasing the production of consumption goods by 10 units? By 60 units?

(b) Does the law of increasing additional costs hold true for this nation? Why or why not?

Define opportunity cost. What is your opportunity cost of attending a class at 11:00 A.M.? How does it differ from your opportunity cost of attending a class at 8:00 A.M.?

Explain why the economy faces a trade-off between consumption goods and capital goods.

After the concert discussed in Problems, 2-3 is over and you and your friend are traveling home, you discuss how each of you might otherwise have used the four hours devoted to attending the concert. The four hours could have been used to study, watch a sporting event on TV, or get some extra sleep. Your friend decides that if she had not spent four hours attending the concert, she would have chosen to study, and you reply that you otherwise would have watched the televised sporting event. Identify the relevant opportunity costs for you and your friend for allocating your four hours to attending the concert. Explain briefly.
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