Category: Essentials of Economics: 8e Ch 09

News articles can give us the impression that the world is both more warlike (with fighting in various countries) but also more peaceful and prosperous. To try to explain this confusion, an American economist with the Teal consultancy group, Richard Aboulafia, has developed a unique index; the Guns-to-Caviar Index. By mapping how much the world spends on fighter jets (guns) against how much the world spends on executive private jets (caviar) for the last 17 years, Aboulafia has given us an interesting view of the state of the world.

Obscure Economic Indicator: The Guns-to-Caviar Index MSN Slate(14/12/06)

Questions

1. What is meant by a production possibility frontier.
2. Draw a production possibility frontier to illustrate the underlying theory behind the Guns-to-Caviar index. Use the diagram to illustrate the changes that have taken place in the index during the 1990s and the early part of this century.
3. Critically assess whether the Guns-to-Caviar index can really help explain changes in the current geopolitical/economic climate.