h1f10_1 - ECO 304K INTRO MICRO FALL 2010 Hickenbottom...

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ECO 304K INTRO MICRO FALL 2010 Hickenbottom HOMEWORK #1 (Due September 15 th ) 1. There is an economy consisting of only two people, Jerry and Elaine. In one year, Elaine can write 64 TV scripts or 8 books. Jerry can write 25 TV scripts or 5 books. a) Determine who has the comparative advantage in each good and show the numbers you used to come to that conclusion. (1 point) b) Draw the PPF for one year’s production of the economy with TV scripts on the vertical axis. Be sure to specifically label both intercepts and the other key point on the graph. Also label on the graph the slope at every point. (1 point) c) Explain why Elaine having 5 books and 25 TV scripts and Jerry having 3 books and 15 not possible without trade. Describe the production of each person and the trade that makes this outcome possible. What is the “price” of a book in this trade? (1 point) 2. The wood used to make pickets for fences usually comes from soft wood trees like pine. Wooden fence posts come from harder woods since they must
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h1f10_1 - ECO 304K INTRO MICRO FALL 2010 Hickenbottom...

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