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Imagine a society that produces military goods and

Principles of Microeconomics | 7th Edition | ISBN: 9781285165905 | Authors: N Gregory Mankiw ISBN: 9781285165905 94

Solution for problem 2 Chapter 2

Principles of Microeconomics | 7th Edition

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Principles of Microeconomics | 7th Edition | ISBN: 9781285165905 | Authors: N Gregory Mankiw

Principles of Microeconomics | 7th Edition

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Problem 2

Imagine a society that produces military goods and consumer goods, which well call guns and butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point that the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired produc-tion of guns by the same amount. Which party would get the bigger peace dividend, measured by the increase in butter production? Explain.

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Textbook: Principles of Microeconomics
Edition: 7
Author: N Gregory Mankiw
ISBN: 9781285165905

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Imagine a society that produces military goods and

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