Solution to Problem Set 01 _ECO100_

# Solution to Problem Set 01 _ECO100_ - Prof Gustavo Indart...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Solutions to Problem Set 1 1. a) 40 tons of Food . b) 20 tons of Clothing . c) D is not attainable with present resources and technology. d) B represents unemployed resources or the use of inefficient technologies. e) A and C are both maximum output combinations and so we cannot choose between them without information on societal wants. f) Technological change. 2. a) See Graph on next page. b) i) 1 unit of Raw Material. ii) 7 units of Raw Material. c) Any point below the production possibility curve PPC 0 . d) PPC 1 on graph on next page. e) PPC 2 on graph on next page. f) Opportunity Cost is constant because all resource units are able to produce the same output. g) Resource cost is the cost measured in resources used whereas opportunity cost is the cost of the best foregone option (i.e., measured in the commodity given up).

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3. a) 20 thousand tons of Steel. b) 2 thousand loaves of Bread [(40 million Loaves)/20 thousand tons)]. c) 1 million loaves of Bread cost 5/4 thousand tons of Steel. d) Steel intercept = 150 thousand tons. Bread intercept = 250 million loaves. e) If Gross Investment > Depreciation, then Net Investment > 0 and the capital stock of the country increases. Since the quantity available of a productive resource (factor of production) increases, then the PPC shifts out. 2.5
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Solution to Problem Set 01 _ECO100_ - Prof Gustavo Indart...

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