S.
Klepper, Economics
73-100, Fall 2009
Consider a country that produces two goods, food and shelter. Suppose both goods are produced using only labor, the only productive resource of the country. Assume there are a total of 200 units of labor available to produce food and shelter. Suppose that initially two units of labor are required to produce each unit of each good. Subsequently, an innovation is developed that lowers the amount of labor required to produce each unit of food from two to one unit.
Which
of the following statements concerning this situation are correct? Mark true for a correct answer and false for
an incorrect one and provide explanations for each of your answers.
_____1. Prior to the
innovation, the production possibilities curve of the country was a straight
line.
_____2. After the innovation, the production possibilities curve of the country
was a straight line.
_____3. Prior to the
innovation, the opportunity cost of each unit of food was one unit of shelter.
_____4. After the
innovation, the opportunity cost of each unit of food was two units of
shelter.
_____5. The maximum number
of units of food the country could produce was twice as great after the
innovation than before it.