E1_sample_Econ 102_sol

E1_sample_Econ 102_sol - Economics 102: Principles of...

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Economics 102: Principles of Microeconomics 1 Sample Exam 1 (Solutions) 1- A. Because a Canadian worker can make either two cars a year or 30 bushels of wheat, the opportunity cost of a car is 15 bushels of wheat. Similarly, the opportunity cost of a bushel of wheat is 1/15 of a car. The opportunity costs are the reciprocals of each other. B. See Figure 4. If all ten million workers produce two cars each, they produce a total of 20 million cars, which is the vertical intercept of the production possibilities frontier. If all ten million workers produce 30 bushels of wheat each, they produce a total of 300 million bushels, which is the horizontal intercept of the production possibilities frontier. Because the trade-off between cars and wheat is always the same, the production possibilities frontier is a straight line. If Canada chooses to consume ten million cars, it will need five million workers devoted to car production. That leaves five million workers to produce wheat, who will produce a total of 150 million bushels (five million workers times 30 bushels per worker). This is shown as point A on Figure 4. C. If the United States buys 10 million cars from Canada and Canada continues to consume 10 million cars, then Canada will need to produce a total of 20 million cars. So Canada will be producing at the vertical intercept of the production possibilities frontier. However, if Canada gets 20 bushels of wheat per car, it will be able to consume 200 million bushels of wheat, along with the 10 million cars. This is shown as point B in the figure. Canada should accept the deal because it gets the same number of cars and 50 million more bushels of wheat. In other words, Canada can consume beyond its production possibilities if it accepts the deal.
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Economics 102: Principles of Microeconomics 2 Figure 4 2.-
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This note was uploaded on 07/29/2009 for the course ECON 102 taught by Professor Clague during the Spring '08 term at San Diego State.

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E1_sample_Econ 102_sol - Economics 102: Principles of...

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