Problem Set 1

Problem Set 1

YOUR NAME:_______________________________ YOUR TAs NAME:___________________________ YOUR DISCUSSION #_____________ THE GEORGE WASHINGTON UNIVERSITY Department of Economics Economics 011 Section 14 Prof. Steve Suranovic Fall 2012 Problem Set #2 – Answers Answer all of the following questions from the book and those below. HW #2 is due in class on Wednesday Feb 22nd . A. Questions from Text and Readings R&T Chapter 2-5 (online), Chapter 2. 4 Review and Practice (in printed textbook); Concept Problems 2, 3; (for Extra Practice complete Numerical Problems 1 – 5 (not required for HW1)) CP2.

Why does the downward-sloping production possibilities curve imply that factors of production are scarce? CP2. A downward-sloping production possibilities curve shows that in order to obtain more of one good (or service), another must be forgone. That is the meaning of scarcity—the situation where we are forced to choose among alternatives. CP3 In what ways are the bowed-out shape of the production possibilities curve and the law of increasing opportunity cost related? Answers to Extra Practice Numerical Problems Numerical Problems 1. a.

The production possibilities curve is a straight line from a point at twenty trees per day on the vertical axis to four lawns per day on the horizontal axis. b. Nathan must forgo 1/5 of a lawn mowed for each tree he plants. c. Mowing a lawn requires that Nathan give up planting 5 trees. Trees planted per day Figure 2-1a 20 4 Lawns mowed per day 2. a. The production possibilities curve is a straight line drawn from four trees planted per day on the vertical axis to four lawns mowed per day on the horizontal axis. b. The opportunity cost of planting a tree is mowing one lawn per day. . The opportunity cost of mowing one lawn is planting one tree. Trees planted per day Figure 2-2a 4 4 Lawns mowed per day 3. Nathan’s opportunity cost of planting one tree per day is 1/5 of a lawn mowed, while David’s cost per tree planted per day is one lawn mowed per day. Nathan has the comparative advantage in planting trees. David’s opportunity cost for mowing one lawn is planting one tree; Nathan’s opportunity cost for mowing one lawn is planting five trees. David has the comparative advantage for mowing lawns. 4. a. The slope of Germany’s production possibilities curve is ! 1/3). b. The slope of Turkey’s production possibilities curve is ! 2. c. The opportunity cost of a T-shirt in Germany is 1/3 of an optical instrument. d. The opportunity cost of a T-shirt in Turkey is 2 optical instruments. e. The opportunity cost of producing an optical instrument in Germany is three T-shirts per year. f. The opportunity cost of producing an optical instrument in Turkey is 1/2 a T-shirt per year. g. Germany has a comparative advantage in the production of T-shirts. h. Turkey has a comparative advantage in the production of optical instruments. . a. b. To produce one additional bowling ball per month requires reducing production of bicycles by 1/4 of a bicycle per month so the opportunity cost of an additional bowling ball is 1/4 of a bicycle. c. d. The opportunity cost of producing one more bowling ball per month in Eastern Leisureland is the production of 4 bicycles per month. e. Western Leisureland has a comparative advantage in bowling ball production because it costs less to produce them there. Eastern Leisureland has a comparative advantage in producing bicycles. f. g. 00 bowling balls per month can be produced. h. Bowling balls will be produced in Western Leisureland, and bicycles will be produced in Eastern Leisureland. E xtra Chapter B Reading (PDF file in BB Lecture Notes Folder): All problems at end of Chapter 1. Suppose Reggie has the following unit-labor requirements producing corn and wheat: aLC = 200 hrs per ton, aLW = 100 hours per ton. Nigel has the following unit-labor requirements: aLC = 300 hrs per ton, aLW = 120 hours per ton. !” #$! %&'(&)*++’*,(&-. /012%’3’%4&’5&6$*! %&-. /012%’/57&852910*&15’%(“&&& & ‘” :. /0#$*! %&;&#&;&