Question

b. An economy produces only two goods, hot dogs and hamburgers. Both goods are produced efficiently. If a discovery is made of the remarkable health benefits of hot dogs were to change consumers’ preferences, i. Use the productions possibilities frontier to explain what would happen.

Answer 1

Answer:

This will result in move of the economy along the production possibilities frontier.

Explanation:

The production possibility frontier shows the various combinations of resources that can be used to produce two goods in an economy.

For example if hot dogs and hamburgers can be produced and if resources are used equally between them we can get 5:5 ratio of hotdogs to hamburgers.

If a discovery is made of the remarkable health benefits of hot dogs and there is change in consumer preferences, more of available resources will be used to produce hotdogs and less will be dedicated to hamburger production. The ratio of hotdogs to hamburgers may now be 8:2.

Below is an illustration of movement along the production possibility frontier.