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"Imagine a society that produces military goods and consumer goods affectionately known as ""guns"" and ""butter"".
a. Draw a production possibilities frontier for this economy.
Show a point that is: inefficient; efficient; impossible. Explain why your frontier has a ""bowed out"" shape.
b. Assume that this society has two political parties- Hawks (who support a strong military) and Doves (who prefer a smaller military presence). Show points on your production possibilities frontier that would represent each partys position. Which one is best for society?
c. Using a production possibilities frontier model, show (using the labels before and after) how the following scenarios would change the economy (shift of, or movement around/inside) the frontier and explain why the change.
1. A hurricane slows down the next two months of butter production.
2. Microsoft develops new software that significantly increases gun production.
3. A change in immigration laws makes it easier for butter workers to enter the country.
4. The domestic gun manufacturers outsource their production orders to new factories in Mexico and India.
5. Some of the employees at the domestic gun factories accept a transfer to Mexico and India.
6. Assume that an aggressive neighboring county reduces the size of its military. As a result, both the Hawks and Doves reduce their desired production of guns by the same amount (reduce by the same amount... NOT.... to the same amount). Which party could claim the biggest peace dividend (as measured by the change in butter production) at the next election?
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Production Possibilities Frontier

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