Question • Draw a production possibilities

08 Jun Question • Draw a production possibilities

Question
• Draw a production possibilities frontier for a society that produces cars and trains. Show an example of an efficient point, inefficient point, and infeasible point on your PPF. Be sure to label your axes!

• Sev and Mary have the following valuations for a set of goods:

Item Sev’s Valuation Mary’s Valuation

Bubble gum 5 5

Chainsaw 6 10

Volvo 40 60

Snickers bar 15 2

Sev and Mary are given the following baskets of goods: Sev gets 2 bubble gum, 0 chainsaws, 1 Volvo, and 4 Snickers bars. Mary gets 4 bubble gum, 2 chainsaws, 5 Volvos, and 1 Snickers bar.

What is the total, personal value of Sev’s basket?

What is the total, personal value of Mary’s basket?

Propose a trade involving just one item on each side that would make both Sev and Mary better off.

Sev trades to Mary ->

Mary trades to Sev ->

• Draw the societal PPF for pens and paper that would combine the productions of Darrin, Henry, Frank, and Tracy. The table below shows their individual productions of each good separately, assuming they spent all their time producing just that one good. Be sure to label your axes, each segment of the societal PPF (by attaching a name to it), endpoints, and all middle points where the slope changes (i.e. where a “kink” in the graph occurs). I suggest you use Excel for this, or at least graph paper. If you draw it by hand, please demonstrate a minimal artistic ability that at least includes drawing straight lines and marking off intervals on your graphs evenly.

Darrin Henry Frank Tracy

Pens 20 9 12 2

Paper 1 17 11 16

• The table below shows the possible productions of Rachel and Fred for pens and pencils. It should be interpreted the same as the Kevin-Jim corn-wheat example from the notes. Answer the questions that follow.

Rachel Fred

Pens 25 10

Pencils 5 40

• Who has the absolute advantage in making pens?

• Who has the absolute advantage in making pencils?

• What is Rachel’s opportunity cost of making 1 pen?

• What is Fred’s opportunity cost of making 1 pen?

• Who has the comparative advantage in making pens?

• Who has the comparative advantage in making pencils?

Please circle the correct answer for the multiple choice questions that follow.

• Economic scarcity arises from:

• Inefficient production

• Exploration

• Limited wants and limitless resources

• Limited resources and limitless wants

• Economic scarcity is experienced by:

• Only the poor

• Only the wealthy

• Only producers

• Everyone in society

• Factors of production include all of the following EXCEPT:

• Labor

• Land

• Capital

• None of the above answers are correct because all of the above are factors of production

• You have the choice of going to Disney World for the week, going skiing for the week, or working at your job for the week. The opportunity cost of going to Disney World is:

• The combined value of working and skiing

• Zero

• The value of working or skiing, depending on which you would have chosen instead of Disney World

• The amount of money you spend on soda while at Disney World

• Which of the following statements apply to economic models?

• An economic model makes assumptions

• An economic model is simpler than the reality it explains

• The production possibilities frontier is one example of an economic model

• Statement I only

• Statements II and III only

• All of the above statements are correct

• Which of the following is NOT illustrated by a PPF?

• Scarcity

• Who gets the goods produced

• Opportunity cost

• Necessity of making tradeoffs

• A country that must decrease production of one good in order to increase the production of another

• Must be using resources inefficiently

• Must be using resources efficiently

• Must be producing inside its PPF

• Must be producing outside its PPF

• Suppose a country, when operating on its PPF, can produce 25 tons of corn and 60 tons of wheat OR 26 tons of corn and 57 tons of wheat. At that point on the PPF, the opportunity cost of 1 ton of corn is:

• 10 tons of wheat

• Nothing. Scarcity is a lie dreamed up by the NSA and inserted into principles of economics classes in order to control the masses.

• 5 tons of wheat

• 60 tons of wheat