Econ 1 topic 1 solution

Econ 1 topic 1 solution - 0.5 liters of milk B Bosnia has a...

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TOPIC 1 PRACTICE PROBLEMS 1 Problem 1. Production Possibilities Draw the PPC for production of A and B. Resource constraint is R a + R b = R and production functions A = f(R a ) and B = f(R b ) are as shown below. (All axes measure positive values.) Problem 2 - Circular Flow For the flows in Figure A, write the number of the correct description from the list. List for Figure A 1 2 3 4 5 6 7 8 Commodities demanded by consumers Commodities supplied by producers Buyer spending on goods and services Sales revenue of firms Business costs of production Household incomes Supply of land, labor and capital Employment of resources 1 Some answers provided in boldface . B A R b R a R a + R b = R A = f(R a ) B = f(R b ) PPC Fig. A Product Market Factor Market Consuming Sector Producing Sector 7 1 2 8 3 4 5 6
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Problem 3. Specialization and Trade Use Table A to answer the following questions: A. The opportunity cost of a unit of wool in Albania is __
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Unformatted text preview: 0.5 __ liters of milk. B. Bosnia has a comparative advantage in __ Wool __ production. C. True or False: Bosnia's economic productive capacity exceeds Albania's. TRUE If Bosnia and Albania specialize appropriately and then trade, the PPCs in both countries will shift out. FALSE An individual, firm, or nation must be able to produce more of a good or service before it can have a comparative advantage in that good or service. FALSE Problem 4 An economy has two kinds of resources. One kind can produce tea (R) but nothing else. The other can produce sugar (S), but nothing else. Draw this economy’s production possibilities set and locate the points in the set which are Pareto efficient in production. Table A Albania Bosnia Comb. Milk Wool Milk Wool A B C D E 0 25 50 75 100 200 150 100 50 0 0 25 50 75 100 300 225 150 75 0 T S Only Pareto Efficient Point...
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Econ 1 topic 1 solution - 0.5 liters of milk B Bosnia has a...

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