Author Question: The short-run Phillips curve shows the relationship between the A) inflation rate and the ... (Read 94 times)

mikaylakyoung · **on:** Jun 29, 2018

The short-run Phillips curve shows the relationship between the

A) inflation rate and the unemployment rate.
B) inflation rate and the nominal interest rate.
C) natural unemployment rate and the expected inflation rate.
D) natural unemployment rate and the real interest rate.
E) expected inflation rate and the unemployment rate.

Question 2

When economists state that the opportunity cost of a product increases as more of it is produced, what do they mean? For instance, what is the opportunity cost? And, where in a PPF diagram does this statement apply and where does it not apply?

What will be an ideal response?

braelync · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

In general, the opportunity cost of increasing the production of one good or service is the forgone production of another good or service. The statement that the opportunity cost of a product increases as more of it is produced applies to production points on the production possibilities frontier. On the production possibilities frontier, resources are fully employed. Hence to increase the production of one good or service, resources must be switched away from the production of another good or service and hence the production of that good or service decreases. And, as more of the first good or service is produced, the opportunity cost of an additional unit becomes larger, so that the opportunity cost increases. However, the assertion that the opportunity cost of a product increases as more of it is produced does not apply to production points within the production possibilities frontier. Production points within the production possibilities frontier are points at which there are resources being used inefficiently. From a production point with inefficiently used resources, to increase the production of a good, some of the resources can be used efficiently and so there is no opportunity cost in terms of forgone other products. Therefore from a point within the production possibilities frontier, the opportunity cost of increasing the production of a good is zero.