problem set answers 2

problem set answers 2 - Dr. Seiji Steimetz ECON 101 ANSWERS...

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Dr. Seiji Steimetz ECON 101 Department of Economics California State University, Long Beach Page 1 of 9 A NSWERS FOR P ROBLEM S ET 2 Chapter 2 LEARNING OBJECTIVE LEARNING OBJECTIVE 2-1: Use a production possibilities frontier to analyze opportunity costs and trade-offs. Review Questions 1.1 Scarcity is the situation in which wants exceed the limited resources available to fulfill those wants. There are some things that are available in such abundance that they exceed our wants. For example, for most people there is enough oxygen in the atmosphere that the amount they want to inhale equals or exceeds the amount available – so oxygen isn’t scarce for them. Another example might be weeds in your garden – unlike tomato plants, the amount available exceeds the amount you desire. 1.2 The production possibilities frontier ( PPF ) is a curve showing all the attainable combinations of two products that may be produced with available resources and existing technology. Combinations of goods that are on the frontier are efficient because all available resources are being fully utilized, and the fewest possible resources are being used to produce a given amount of output. Points inside the production possibilities frontier are inefficient, because the maximum output is not being obtained from the available resources. A production possibilities frontier will shift outward (to the right) if more resources become available for making the products or if technology improves so that firms can produce more output with the same amount of inputs. 1.3 Increasing marginal opportunity costs means that as more and more of a product is made, the opportunity cost of making each additional unit rises. It occurs because the first units of a good are made with the resources that are best suited for making it, but as more and more is made, resources must be used that are better suited for producing something else. Increasing marginal opportunity costs implies that the production possibilities frontier is bowed to the right from the origin – that its slope gets steeper and steeper as you move down the production possibilities frontier. Problems and Applications 1.4 a. The production possibilities frontiers in the figure are bowed to the right from the origin because of increasing marginal opportunity costs. The drought causes the production possibilities frontier to shift to the left.
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Dr. Seiji Steimetz ECON 101 Department of Economics California State University, Long Beach Page 2 of 9 b. The genetic modifications would shift to the right the maximum soybean production (doubling it), but not the maximum cotton production. 1.5 Increased safety will decrease gas mileage, as shown in the figure. Trade-offs can be between physical goods, such as cotton and soybeans in problem 1.4, or between less tangible things like mileage and safety.
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This note was uploaded on 02/11/2010 for the course ECON 101 taught by Professor Steimetz during the Fall '08 term at CSU Long Beach.

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problem set answers 2 - Dr. Seiji Steimetz ECON 101 ANSWERS...

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