Problem Set 01 (ECO100)

# Problem Set 01 (ECO100) - Prof Gustavo Indart Department of...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Problem Set 1 1. Labour is the only resource in an economy with the following maximum production possibilities. (The graph is drawn as a curve rather than points under the assumption that opportunity cost is constant between options.) a) What is the opportunity cost of increasing Clothes production from 20 to 40 tons? b) What is the opportunity cost of increasing Food output from 70 to 100 tons? c) Is point D an output option for this economy? Explain your answer. d) What does point B represent in terms of resources? e) Is point C a greater output combination than A? Explain. f) What change in the economy is necessary to produce 50 tons of Clothes and 50 tons of Food if the labour force remains unchanged? 2. The table below gives some production possibilities for a country producing only two goods: raw material output and manufacturing output. All resources are fully employed. Assume constant opportunity costs between these options. a) Graph the production possibility curve (PPC 0 ) with Raw Material on the horizontal axis. b) What is the opportunity cost to the economy of increasing Manufacturing output from: (i) 0 to 2 units? (ii) 2 to 8 units? Option Clothes (Tons) Food (Tons) 1 50 0 2 40 30 3 20 70 4 0 100 Raw Material (units) 11 10 8.5 6 3 0 Manufacturing (units) 0 2 4 6 8 8.5

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2 c) Pick a point on your diagram that represents less than full employment of the labour force. d) Graph a new production possibility curve (PPC 1 ) that reflects the effects of technological improvement in the manufacturing sector only. e) Starting from your original graph (PPC 0 ), illustrate the effects of a contraction in the labour force (e.g., emigration) with no technological change in either the raw material or manufacturing sector. f) The PPC is typically drawn concave to the origin. What would be the assumption underlying a PPC which is a straight line? g) What is the difference between the resource cost of a commodity and the opportunity cost of a commodity? 3. The following table gives the production possibilities for an economy with full
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## This note was uploaded on 08/10/2010 for the course ECONOMICS ECO100Y taught by Professor Furlong during the Summer '09 term at University of Toronto.

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Problem Set 01 (ECO100) - Prof Gustavo Indart Department of...

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