ECON 100A Lecture 8: Lecture 8
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Q1. The following table shows the relationship between outside temperature (T) and number of hot drinks sold (Q).
Outside temperature (T) | Number of hot drinks sold(Q) |
0 0F | 1000 cups |
20 | 900 |
40 | 800 |
60 | 700 |
80 | 600 |
a. Graph and briefly explain the relationship. Put the number of hot drinks sold (Q) on the vertical axis and outside temperature (T) on the horizontal axis.
b. Compute the slope of the line? Y-intercept? Show your work.
c. Construct the equation that represents this line. Predict the number of hot drinks sold (Q) at 26 0F. Show your work.
Q2. Discuss the opportunity costs of the following cases, respectively.
a .Go to the movie theater and watch a movie instead of studying for a midterm exam.
b .Suppose that an economyâs PPF is a straight line, rather than a concave curve. What would this say about the nature of marginal opportunity cost as production is shifted from one good to the other?
Q3. Dreamlandâs production possibilities schedule is as follows:
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POINT | Capital Goods | Consumption Goods |
A | 0 | 30 |
B | 2 | 27 |
C | 4 | 21 |
D | 6 | 12 |
E | 8 | 0 |
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a. Draw the production possibilities frontier. Put Capital Goods on the horizontal axis and Consumption Goods on the vertical axis.
b. If this economy is at point C, what is the opportunity cost of one more capital good (i.e., marginal opportunity cost)?
c. Can Dreamland produce 6 capital goods and 21 consumption goods? Explain.
d. Suppose that Dreamland has two possible choices in the future: it devotes only 5% of its resources to producing capital goods over each of the next 10 years, whereas it devotes 20%. In which case is Dreamland likely to experience more rapid economic growth in the future? Explain your reasoning.