Your economic consulting firm was recently hired by the President to advise on an upcoming environmentalpolicy. The President is going to make a decision on the policy but wants to fully understand all of theeconomic issues involved. Background:
Your briefing to the President will involve the trade-offs of implementing the environmental policy. First, a review of the core issues. Imagine a hypothetical country that produces two goods: broccoli and casinos.
A) Why is it most likely that the production possibilities frontier has a bowed-out shape?
B) Obviously, it would be better to produce lots of both broccoli and casinos. Are there combinations of broccoli and casinos that are impossible to achieve? Can you explain how to find the feasible but efficient allocations of broccoli?
C) Economic policies can alter the feasible set of production possibilities. But, to a politician they also care about whether their political party will benefit. Suppose that there are two political parties, the Brokesters (who want many casinos) and the Richsters (who want fewer casinos). Now suppose that a breakthrough in education leads to a widespread understanding about the laws of probability, leading both parties to desire fewer casinos. Which party will reap the greater reward, measured by the increase in broccoli production?