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	Economics 14/e McConnell
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2-5 Why is the problem of unemployment part of the subject matter of economics? Distinguish between productive efficiency and allocative efficiency. Give an illustration of achieving productive but not allocative efficiency.

2-6 Here is a production possibilities table for war goods and civilian goods:

2-9 Specify and explain the shapes of the marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefit should more or fewer resources be allocated to this product? Explain.

2-10 Label point G inside the production possibilities curve you drew in question 6. What does it indicate? Label point H outside the curve. What does that point represent? What must occur before the economy can attain the level of production shown by point H?

2-11 Referring again to question 6 suppose improvement occurs in the technology of producing rockets but not in the production of automobiles. Draw the new production possibilities curve. Now assume that a technological advance occurs in producing automobiles but not in producing rockets. Draw the new production possibilities curve. Now draw a production possibilities curve which reflects technological improvement in the production of both products.

2-5 Economics deals with the "limited resources unlimited wants" problem. Unemployment represents valuable resources which could have been used to produce more goods and services -- to meet more wants and ease the economizing problem. Allocative efficiency means that resources are being used to produce the goods and services most wanted by society. The economy is then located at the optimal point on its production possibilities curve where marginal benefit equals marginal cost for each good. Productive efficiency means the least costly production techniques are being used to produce wanted goods and services. Example: manual typewriters produced using the least-cost techniques but for which there is no demand.
2-6 (a) See curve EDCBA below. The assumptions are full employment and productive efficiency fixed supplies of resources and fixed technology. (b) 4.5 rockets; .33 automobiles as determined from the table. Increasing opportunity costs are reflected in the concave-from-the-origin shape of the curve. This means the economy must give up larger and larger amounts of rockets to get constant added amounts of automobiles -- and vice versa. (c) It must obtain full employment and productive efficiency.
2-9 The marginal benefit curve is downsloping; MB falls as more of a product is consumed because additional units of a good yield less satisfaction than previous units. The marginal cost curve is upsloping; MC increases as more of a product is produced because additional units require the use of increasingly unsuitable resources. The optimal amount of a particular product occurs where MB equals MC. If MC exceeds MB fewer resources should be allocated to this use. The resources are more valuable in some alternative use (as reflected in the higher MC) than in this use (as reflected in the lower MB).
2-10 See the answer for Question 2-6. G indicates unemployment productive inefficiency or both. H is at present unattainable. Economic growth -- through more inputs better inputs improved technology -- must be achieved to attain H.
2-11 See the answer for Question 2-6. PPC₁ shows improved rocket technology. PPC₂ shows improved auto technology. PPC₃ shows improved technology in producing both products.

Production alternatives
Type of production	A	B	C	D	E
Automobiles	0	2	4	6	8
Rockets	30	27	21	12	0

Chapter 2 - THE Economizing Problem