GDP

All economies have three key factors of production – land, labour (workers) and capital (machines). These can be combined to make goods and services that the citizens of the economy wish to consume. Below you are given details on a fictional economy. For simplicity, there is assumed to be as much land as is necessary. Capital and labour are, however, limited. Your job is as a planner - your aim is to make your people as happy as possible over a ten year period.

Your economy can make two types of products:

1. 1) Consumer goods (like TVs and CD players). These make your citizens happy.
2. 2) Capital goods (machines and robots). These do not make your citizens happy, but help you to make more consumer goods in the future.

Each consumer good requires either 2 workers or 1 machine (capital good).

Each capital good requires 4 workers or 2 machines or 2 workers and 1 machine.

Chart 1 shows how happy your citizens will be from a certain number of

Each consumer goods produced in a year.

Consumer goods produced this year	Happiness (also known as utility)
1	20
2	39
3	57
4	74
5	90
6	105
7	119
8	132
9	144
10	155
11	165
12	174
13	182
14	189
15	195
16	200
17	204
18	207
19	209
20	210

To start with, your economy has unlimited land, but only 4 workers and 4 machines.

Each year, your population will grow by 1 worker, but 1 machine will break down.

So, if you make no machines in year 1, at the start of year 2, instead of having 4 workers and 4 machines, you will have 5 workers but only 3 machines (because of the broken one). You can of course make more machines, but making machines means you will be able to make fewer consumer goods, and consumer goods are what make your citizens happy...

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