Question

For 50 years, Cuba has had a centrally planned economy in which government makes the big decisions on how resources will be allocated. We would expect Cuba's production possibilities (per person) to be smaller than those of the United States because Cuba _______.

1) is a smaller country than the United States
2) specializes in capital goods and imports all of its consumption goods
3) produces a greater proportion of consumption goods than capital goods, so its PPF does not shift outward as quickly as the PPF in the United States
4)oes not have a comparative advantage in any goods compared to the United States

Answer 1

Cuba's production possibilities per person are expected to be smaller than those of the United States because Cuba focuses more on consumption goods, leading to slower outward shifts in its PPF.

Step-by-step explanation:

For 50 years, Cuba has maintained a centrally planned economy where the government allocates resources and makes the major economic decisions. We would expect Cuba's production possibilities (per person) to be smaller than those of the United States mainly because Cuba produces a greater proportion of consumption goods than capital goods, which implies that its production possibility frontier (PPF) does not shift outward as quickly as that of the United States. This is due to the fact that continual investment in capital goods often leads to economic growth and improvements in productive efficiency. However, as Cuba focuses more on the immediate production of consumption goods, the rate at which their PPF expands can be slower compared to a country like the United States that heavily invests in capital goods.