Exam 2: The Economic Problem: Scarcity and Choice

Refer to the information provided in Scenario 2 below to answer the questions that follow. SCENARIO 2: Assume that two countries are the same in every way except that one allocated more of its resources to the production of capital goods as opposed to consumer goods. -Refer to Scenario 2. Graphically illustrate the production choices on a production possibilities frontier. Which country's PPF will likely move out farther in the future and why?

If the law of increasing opportunity cost holds, can the production possibility frontier be a straight line?

Explain Ricardo's theory of comparative advantage.

Suppose that Rosie and Betty spend their free time making cakes and cookies. Is it possible for Betty to have an absolute advantage in the production of both cakes and cookies? Is it possible for Betty to have a comparative advantage in the production of both cakes and cookies? Explain.

Explain how it might be possible to discuss costs of production of a good or service without using monetary values.

What are the two basic types of economic systems?

Suppose that the opportunity cost of a student's time is greater when he studies than when he works. What mistake is he making and why?

Refer to the information provided in Scenario 4 below to answer the questions that follow. SCENARIO 4: Suppose that a state needs to build both prisons and schools with a budget limited to 10 million dollars. Schools cost $1 million each to build and prisons cost $2 million each to build. -Refer to Scenario 4. What is the opportunity cost of building one more prison?

Is the United States a command economy, a laissez-faire economy, or neither? Explain.

In what ways are technological advancements like capital?

Suppose there is a new technological invention that will allow you to put any resource into a special black box and in an instant anything that you program it to produce will be produced? Does this invention end scarcity? Why or why not?

-Refer to Scenario 3. What would have to occur for three huts to be produced along with 100 coconuts?

The following table shows output per hour for Martha and Stewart who make gift baskets and potholders: What is the opportunity cost of a potholder for Martha? What is the opportunity cost of a potholder for Stewart? Who has an absolute advantage in producing potholders? Who has a comparative advantage in producing potholders?

What problems does a command economy face when it tries to determine what to produce for the economy?

List the three basic economic questions that all societies must answer.

Refer to the information provided in Scenario 2 below to answer the questions that follow. SCENARIO 2: Assume that two countries are the same in every way except that one allocated more of its resources to the production of capital goods as opposed to consumer goods. -Refer to Scenario 2. What would be the impact of improvements in technology assuming that each country spends one-half of its resources on capital goods?

What is the opportunity cost of attending class today?

The table below represents five points on the production possibility frontier for the small country of Ponderosa, which produces only cowboy boots (measured in thousands of pairs) and saddles (measured in thousands): What is the opportunity cost of moving from point A to point B? What is the opportunity cost of moving from point D to point C?

-Refer to Scenario 3. Assume that in one day, two huts were built and 75 coconuts were gathered. What does this situation depict?

Is it possible in the present to produce at a point that is outside the production possibilities frontier? Why or why not? With the passage of time how might a point outside the present production possibilities frontier be possible?