Name: ___________________________
Unit I: Basic Economic Concepts
Problem Set #1
1. Complete each of the following tasks with short paragraphs:
A. Define scarcity and explain how it is related to choices and trade-offs (____/3)
B. Fully explain the difference between the following (USE EXAMPLES FOR EACH):
i.
Trade offs and Opportunity Cost (____/3)
ii.
Price and Cost (____/3)
iii.
Normative and Positive Economics (____/3)
iv.
Consumer Goods and Capital Goods (____/3)
v.
Allocative and Productive Efficiency (_____/3)
2. A. Draw a Production Possibilities Graph for Sony using the following information: (____/5)
Digital Cameras
DVD Players
A
0
56
B
20
54
C
28
51
D
35
45
E
40
37
F
43
27
G
45
0
B. What are the consequences of Sony producing at combination A? What about combination G? Are
these combinations productively efficient, allocatively efficient, or both? Explain? (____/5)
C. Plot the combination 43 cameras and 50 DVD players and label it “X.” Plot the combination 30
cameras and 40 players and label it “Y.” Explain what is happening at these points? (____/4)
D. Explain, with examples, how your graph shows 5 concepts: opportunity costs, efficiency (both
types), unemployment, the law of increasing opportunity costs, and economic growth. (____/5)
3. Use the PPF-A and PPF-B on the back of this paper to answer the following:
A. On PPF-A, what is the opportunity cost from point a to b? What is the PER UNIT OPPORTUNITY
COST of a gun from moving from e to c? (____/2)
B. On PPF-B, what is the opportunity cost from point a to b in terms of guns? What about moving from b
to c? What generalizations can you make? (____/3)
C. Which PPF shows increasing opportunity costs? Use numerical examples to explain why? (____/3)
4. Complete the handout entitled Microeconomics: Lesson 2, Activity 2. (____/10)
5. The following figures represent the amount that can be produced with a fixed amount of factor inputs.
Shirts
TVs
400
200
China
120
30
India
A. Which country has an absolute advantage in producing shirts? Which country has an absolute
advantage in producing TVs? Explain how you got your answer? (____/3)
B. What is China’s opportunity cost for producing one shirt? What is India’s opportunity cost for
producing one TV? (____/2)
C. Identify which country has a comparative advantage in shirts? Which country has the comparative
advantage in TV? Explain how you got your answer? (____/3)
D. Explain why these countries can benefit from trade. Identify a terms of trade that would benefit both
countries? (____/2)
6. Practice FRQ #1 (____/5)
Name: ___________________________
A
B