Consider the PPC for the U. S. economy for goods (such as food and cars) and services (such as haircuts and education). Both types of output are produced using capital (machines) and labor. A. Draw the production possibilities curve (PPC) for the U. S. economy based on this categorization, with goods on the horizontal axis and services on the vertical axis. Explain in words what the following represent: the point where the PPC intersects the vertical axis; the point where the PPC intersects the horizontal axis; the slope of the PPC at a given point. Why is the PPC for the U. S. economy likely to be bowed out?
B. Suppose improvements in communications technology improve our ability to produce both goods and services, but have a particularly large effect on our ability to produce services. How, if at all, would this development show up in the PPC diagram?
C. An important trend in recent decades has been the increasing share of services in total production. How would you show a shift toward a greater proportion of services in production in the PPC diagram?