Carla Rodriguez
Assignment #2
1. Under what conditions is the production possibilities frontier linear rather
than bowed out?
The PPF is linear rather than bowed out when the opportunity cost is constant.
2. Maria can read 20 pages of economics an hour. She can also read 50
pages of sociology in an hour. She spends 5 hours a day studying.
a. Draw Maria’s production possibilities frontier for reading
economics and sociology.
Sociology pages
250
200
150
100
50
25
50
75
100
Economic pages
b. What is Maria’s opportunity cost of reading 100 pages of sociology.
Economics
# of pages in 1 hour
20
# of pages in 5 hours
100
Sociology
50
250
20*5=100
50*5=250
Maria’s opportunity cost of reading 100 pages of sociology = 20/50*100 meaning
her opportunity cost is 40 pages of economics
3. What does it mean to have an absolute advantage vs. a comparative
advantage in a particular task?
Absolute advantage is who can produce more with the resources available while
comparative advantage refers to the specialization meaning who can produce at a
lower opportunity cost this is the bases for trade.
4. What does it mean for a nation has the lowest opportunity cost of
producing a good?
When a nation has the lowest opportunity cost producing a good, they have
comparative advantage meaning it would be beneficial to specialize in producing
that good.
Use the following table to answer questions 5-12
Shoes per
hour
Pants per hour
Jenny
3
2
Craig
4
3
5. According to the data, Jenny has an absolute advantage in …
Jenny doesn't have an absolute advantage because Craig can produce more shoes
and pants per hour
6. Craig possesses an absolute advantage in
Shoes and pants since he produced more than Jenny
7. Jenny’s opportunity cost of producing an extra pair of pants:
3 / 2 = 1.5 shoes (what you give up is the numerator)
8. Jenny’s opportunity cost of producing an extra pair of shoes:
2 / 3 = 0.67 pants
9. Craig’s opportunity cost of producing an extra pair of pants:
4 / 3 = 1.3 shoes
10.Craig’s opportunity cost of producing an extra pair of shoes
3 / 4 = 0.75 pants
11.The comparative advantage for shoes belongs to
Jenny because he has a smaller opportunity cost (0.67) compared to Craig OC of
0.75 meaning its more beneficial for jenny to specialize in producing shoes since
she sacrifices less
10. The comparative advantage for pants belongs to
Craig has a comparative advantage when it comes to producing pants since his
opportunity cost is 1.3 while Jennys is higher at 1.5
11. Based on their comparative advantages, Craig should specialize in the
production of ….
Pants
12. Based on their comparative advantages, Jenny should specialize in the
production of….
Shoes
Use the graph below to answer questions 13-15.
This graph describes the production possibilities on the island of Genovia:
Cars
1,000
50,000
Tons of Agricultural
Products
13. The opportunity cost of producing one car in Genovia is
50,000/1,000 = 50 tons of Agricultural products
14. The opportunity cost of producing one ton of agricultural products in
Genovia is
1,000/50,000 = 0.02 cars
15. Assuming efficient production, if 500 cars are produced in Genovia, how
many tons of agricultural products will be produced?
500 is half one 1,000 so if half of 50,000 is being produced than 25,000 tons of
agricultural products will be produced.
16. Consider a society consisting only of Helen, who allocates her time between
sewing dresses (y) and baking bread (x). Each hour she devotes to sewing dresses
yields 4 dresses and each hour she devotes to baking bread yields 8 loaves of
bread. Helen works a total of 8 hours per day. Graph her production possibilities
curve.
Dresses
per day
dresses per day
Loaves of bread per day
loaves of bread per day
17. Refer to question 16. Which of the points listed below is efficient? Which is
attainable?
a. 28 dresses per day, 16 loaves per day.
b. 16 dresses per day, 32 loaves per day
c. 18 dresses per day, 24 loaves per day
18. Refer to question 16. A sewing machine is introduced that enables Helen to
sew 8 dresses per hour rather than only 4. Show how this development shifts her
PPF.
Dresses
per day
dresses per day
Loaves per day
loaves of bread per day
*the new machine doubles the value of the vertical intercept of Helen’s PPF
Key Terms
Production possibilities frontier: A curve showing the maximum attainable
combinations of two goods that can be produced with available resources and
current technology
Opportunity cost: The highest valued alternative that must be given up to engage
in an activity
Economic growth:
Absolute advantage: The ability of an individual, firm, or country to produce more
of a good or service than competitors using the same amount of resources.
Comparative advantage: The ability of an individual, a firm, or a country to
produce a good or service at a lower opportunity cost than competitors.
Product market:
Factor market:
Factors of production:
Free market and Adam Smith:
Property rights: