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101final2008revised - Eco 101 Final Spring 2008 Prof Dohan...

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Eco 101 Final Spring 2008 Prof Dohan Online copy 1 QUEENS COLLEGE, ECO 101, Final Exam Prof. Dohan, Spring 2008 Last Name (Print)_________________________, First _________________ Last 4 # of Soc Sec. # ___________ Start Time:___________. End Time____________ Seat number _______ Phone Number __________________, Year____, Major _______ College e-mail___________________________ To receive your grade by email, the College requires that you first send the instructor an email authorizing me to send your grade to you by email. Grades may not be sent by email without this authorization. Be sure to state your name, student ID number and the e-mail address to which the grade is to be sent. My email is [email protected] I. Production Possibility Frontiers and Opportunity Costs The concept of opportunity costs helps us think about resource allocation in terms of costs to society in real terms of choosing one good instead of another good if we are at full employment. It also shows that the use of unemployed resources has zero opportunity cost. 8 pt. Batavia has a labor force of 6 persons that produces only two types of goods: 1) consumer goods/cars, 2) machinery/guns. Each type of good uses a fixed amount of specialized resources that can only be used in producing that good. Only labor can be shifted between the two industries. In the table below, we show the combinations of consumer goods/cars and machinery/guns when all six workers are fully employed. Thus, when you produce 220 machinery/guns, you have enough labor left to produce 50 goods/cars. 1. Plot the production possibility frontier from this data.. 2. Every country must produce enough machinery to replace the machinery that depreciates (wears out) each year. Batavia’s economists estimate that they need to produce 110 units of machinery/guns each year to replace the machinery/guns that wear out. If they do not replace the machines/guns that depreciates each year, the production possibility frontier moves inward and this can produce less. If Batavia wants to grow, they have to produce more than 110 units each year to add to their capital stock. They know that they are going to have to reduce the production of goods/cars are if they are going to grow. Right now B atavia is already producing 60 units of machines & guns on the production possibility frontier. 2a. How many consumer goods/cars are they also producing right now? 2b. If Batavia increase the production of machinery/guns up to the minimum 110 units, how many fewer goods/cars can they produce? 2c. Identify this starting point as “A” and the point require to replace depreciated machinery/guns as “Min Mach”. 3. If Batavia declares war on its neighbor Zatavez to capture its oil resources, it needs to produce another 70 units of guns from the machines/guns sector. What is the real cost of the war measured by the decrease in the production of goods/cars? 4. After winning the war, Batavia still produces only 90 units of consumer goods/cars even though it has cut back its production of machinery/guns from 180 to 110 units . Plot this combination of outputs on the graph and label it “R” for recession.
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