problem set one

problem set one - Economics 101 Prof.Schuler Spring 2008...

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Economics 101 Prof.Schuler Spring 2008 Problem Set 1 Due date : Wednesday, February 6,2008 in lecture Q.1 Phyllis can read 50 pages/hour of The Da Vinci Code or 30 pages/hr of the textbook by Frank&Bernanke(FB). She reads for 10 hrs a day. a.Draw her PPF and calculate the opportunity cost of reading 200 pages of FB. b. Now suppose, Phyllis decides to read only 8 hrs/day. What is her new PPF? c.(Ignore part (b)). As the Semester spans out, her ability to read and understand FB increases to 40 pages/hr whereas she continues to read The Da Vinci Code at 50pages/hr. What is her new PPF? New Opportunity cost? Q.2 Two Farmers ( Dwight & Michael) live next door to each other and are considering whether they ought to trade with one another. Each produces wheat (W) and pork (P). Let Dwight’s PPF be given by W=10-2P and Michael’s PPF be given by W=4-(1/4)P. Without trade, Dwight produces and consumes 2 units of pork and 6 units of wheat. Without trade, Michael produces and consumes 8 units of pork and 2 units of wheat.

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