ECONOMIC ANALYSIS EASY AS 1..., 2..., 3... 1. Where are you before any changes? Mark a beginning point based on the scenario. (A) Tell how you knew where to start. What was the change? What happened in the scenario? Did production of one good increase? Did we go to war? Restate it simply here. What was the result of the change? Short Run Where are we now? What was the immediate impact on the two variables? Which way on the line did we move? Are we inside the line? Show the result with a new point. (B) Long Run What happened to the location of the production possibilities frontier? Did it move in or out? If it moved show the new location with a new line and arrows indicating the direction of change. Tell what changed to cause this movement (this must be a change in a resource or technology).

PRODUCTION POSSIBILITIES CURVE Scenario: While at full-employment new developments in computer technology cause many business to invest in new computer systems. Begin: Change: Result of Change: Short run: Long run: Capital Goods Consumer Goods

While at full-employment new developments in computer technology cause many business to invest in new computer systems. Begin: A , because at full-employment Change: US companies increase purchase and production of capital goods. 3. Result of Change: Move to B Short run: Consumer goods decrease and Capital goods increase Long run: Production Possibilities Curve shifts outward due to more capital. B Ca2 Capital Goods A Ca1 Co2 Co1 Consumer Goods