If the production possibility frontier shifts out, a country is definitely better

| November 24, 2016

Question 1

“If the production possibility frontier shifts out, a country is definitely better off because it can reach a higher community indifference curve”. Discuss the validity of this statement with the aid of two different, suitable diagrams.

Question 2

“A large developing economy should implement import substitution strategy while a small developing economy should implement export oriented strategy in the process of industrialization”. Discuss the validity of this statement.

Question 3

How does the production possibility frontier (PPF) look under constant and under increasing costs as well as in case of economies of scale? Use graphs to explain the shape of the PPF and its implications for specialization in production(for a “two-country-two-goods model”).

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