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Problem Set #1
Transcript of Problem Set #1
Problem Set #1
A. What are the consequences of Ford producing at combination A? Combination G? In reality, are either combinations desirable? Why? Why not?
B. Plot the combination with
20 cars and 40 trucks and label it
x". Plot the combination with 25 cars
and 20 trucks and label it "Y". Explain what is happening at these points.
Explain the relationship between scarcity, choices and trade-off.
Economics is the study of scarcity. Scarcity is the condition in which our wants are greater than our resources. This results in having to make choices on how our resources are used. Choice results in a trade-off of what is not necessary for what is.
Differentiate between price, cost, and opportunity cost.
Price is what has been paid in terms of currency to acquire a given product. Cost is the value that was given up to acquire a good or service. Opportunity cost is the most desirable alternative given up as a result of choice.
Explain the following:
Consumer and capital goods: A consumer good is the coffee You buy at Starbucks. A capital good is the machine used to grind the coffee
Normative and Positive Economics: The statement "The government should provide ever person with a car" is a normative statement because it is an opinion on the role of the government. The statement "if the government provided every person with an amrican made car; it would boost the economy and create more jobs," this is a positive statement because if american car companies needed to hire more americans to build more cars then more people would have a job and the economy would grow.
allocative and productive efficiency: Productive efficiency is a company saving more money by selling shirts at bulk because it is cheaper to produce. Allocative efficiency is a company producing and selling only 3 shirts to one customer.
Free- market and centrally planned economies: A free- market economy is where a person has the "freedom" to choose when and where to work, what to buy(how much to buy), and so on. Centrally planned economies tell the people where to work, how much money they will make, and ration resources, goods, and services; think communism.
Resource markets and product markets: A resource market is like a home depot where they sell the wood and nails to make a shelf. a product market is like target where you buy a reassembled shelf.
In combination A, you may have an excess of trucks being produced, but you have no cars.
In Combination G, you may have cars in production but no trucks.
Neither combinations are desirable because in both instances you are not able to produce both cars and trucks.
Annie, Cassandra, Celina, Crystal
At y, there is almost a balance of cars and trucks in production.
At x, there are twice as many trucks in production.
C. which graph shows increasing opportunity cost? give A numerical explination.
1 2 3 4 5
1 2 3 4 5
FROM B TO A THE opportunity COST IS 5. THE GRAPH SHOWS THAT THERE IS A CONSTANT opportunity COST
FROM A TO B THE THE opportunity COST IS 0.5 THE PER UNITY COST FROM C TO E IS 4 GUNS
PPF-A is constant
y-axis is 5 guns
& x-Axis is 5 Guns
An Increase in technology for guns, an increase in technology for butter churners,a population increase, or more efficient labor work
Technology increase in gun production
Increase in technology for
Increase in Population
INCREASING OPPORTUNITY COST PER UNIT OF GOOD B
ZERO opportunity COST PER UNIT OF
CONSTANT OPPORTUNITY COST PER UNIT OF GOOD B
should they trade?
A. Which country has the absolute advantage in bananas? Which country has the absolute advantage in sugarcane? Explain how you arrive at that answer.
Guatemala has the absolute advantage in bananas and sugarcane because it produces the larger amount of both.
B. What is Costa Rica’s opportunity cost for producing one unit of bananas? What is Guatemala’s opportunity cost for producing one unit of sugarcane?
Costa Rica’s opportunity cost for producing one unit of bananas is 1/5 sugarcane and the opportunity cost for one unit of sugar cane is 5 bananas.
C. Which country has the comparative advantage in bananas? Which country has the comparative advantage in sugarcane? Explain how you arrive at that answer?
Costa Rica has the comparative advantage because it produces 1/5 unit bananas. Guatemala has the comparative advantage in sugar cane because it produces 4 units of sugarcane.
D. Should these countries trade? If so, how should they specialize and why?
Yes. They should trade. Costa Rica should trade bananas because it has the comparative advantage and Guatemala should trade sugar cane because it has the comparative advantage there.
A b c d e f g
cars 0 10 18 25 30 33 35
trucks 45 42 39 33 25 15 0
costa rica 100 20
Guatamala 120 30
Ppf- B shows increasing opportunity cost.
a to b the cost is 5 guns.
b to c it is 1.5 guns
c to d is 3 guns.