Imagine a society that reduces military good and customer goods, which we will call “butter” and “guns”.
a. Draw a production possibilities frontier for butter and guns. Using the concept of opportunity cost, describe 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 however 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 and a point that the Doves might chose.
d. Imagine that an aggressive neigh boring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger “peace dividend”, gauged by an increase in butter production? Describe.