Problem
#1 ( Budget Lines) :
Suppose that Russ has budgeted $20 a month to buy candy bars, music downloads, or
some combination of each. If Russ buys only candy bars he can obtain 40 bars a month; if
he buys only downloads, he can buy 20 a month.
1. What is the price of a candy bar?
2. What is the price of a music download?
3. What is the opportunity cost of a music download?
4. What is the opportunity cost of a candy bar?
5. Would the opportunity cost of each good change if Russ decided to increase his
monthly budget to $30 for the two items?
Problem #2 ( Production Possibilities ):
Suppose that a nation's production possibilities can be represented by the table below:
Production Alternatives
Product Alternatives Products A B C D E Food 0 4 8 12 16 Clothing 20 18 14 8 0
Products A B C D E
Food 0 4 8 12 16
Clothing 20 18 14 8 0
1. What is the maximum amount of food this economy can produce? How much clothing
can it produce at this point?
2. If the economy is producing at alternative C, what is the cost of one more unit of
food?
3. If the economy is producing at alternative C, what is the cost of one more unit of
clothing?
4. Is this economy subject to the law of increasing opportunity costs? How can you tell?
5. Suppose the economy is currently producing 4 units of food and 16 units of clothing.
Is this economy producing efficiently?
Problem
#1 ( Budget Lines) :
Suppose that Russ has budgeted $20 a month to buy candy bars, music downloads, or
some combination of each. If Russ buys only candy bars he can obtain 40 bars a month; if
he buys only downloads, he can buy 20 a month.
1. What is the price of a candy bar?
2. What is the price of a music download?
3. What is the opportunity cost of a music download?
4. What is the opportunity cost of a candy bar?
5. Would the opportunity cost of each good change if Russ decided to increase his
monthly budget to $30 for the two items?
Problem #2 ( Production Possibilities ):
Suppose that a nation's production possibilities can be represented by the table below:
Production Alternatives
| Product Alternatives | |||||
| Products | A | B | C | D | E |
| Food | 0 | 4 | 8 | 12 | 16 |
| Clothing | 20 | 18 | 14 | 8 | 0 |
Products A B C D E
Food 0 4 8 12 16
Clothing 20 18 14 8 0
1. What is the maximum amount of food this economy can produce? How much clothing
can it produce at this point?
2. If the economy is producing at alternative C, what is the cost of one more unit of
food?
3. If the economy is producing at alternative C, what is the cost of one more unit of
clothing?
4. Is this economy subject to the law of increasing opportunity costs? How can you tell?
5. Suppose the economy is currently producing 4 units of food and 16 units of clothing.
Is this economy producing efficiently?
Related textbook solutions
Related questions
The production possibilities curve below shows the hypothetical relationship between the production of food and clothing in an economy.
| Combination | Food | Clothing |
|---|---|---|
| A | 0 | 4 |
| B | 7 | 3 |
| C | 13 | 2 |
| D | 18 | 1 |
| E | 22 | 0 |
Instructions: Enter all values as whole numbers.
a) What is the marginal opportunity cost of producing the first unit of clothing?
______
units of food
b) What is the total opportunity cost of producing the first unit of clothing?
______
units of food
c) What is the marginal opportunity cost of producing the fourth unit of clothing?
________
units of food.
d) What is the total opportunity cost of producing the fourth unit of clothing?
________
units of food.
e) Is 5 units of food and 2 units of clothing attainable or unattainable, given these production possibilities?
________
Problem 1
Below is a production possibilities table for consumer goods (food) and capital goods (machinery). Graph the data using Excel and then answer the following questions.
|
A |
B |
C |
D |
E |
F |
|
|
FOOD |
0 |
10 |
20 |
30 |
40 |
50 |
|
MACHINES |
150 |
140 |
120 |
90 |
50 |
0 |
(a) What are the specific assumptions that underlie the production possibilities curve?
(b) What would be the cost of more food if the economy is at point C? What would be the cost of producing more machinery? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs?
(c) What if this hypothetical economy were producing only 9 food and 130 machines and it was depicted by this production possibilities table and curve? What conclusions could be drawn about this economy's resource utilization?
(d)Can this economy produce outside its current production possibilities? How can technological changes affect the production possibilities curve? How can international trade permit consumption above its production possibilities curve?
