Econ1-Fall2010-PS1 - Econ 1 Problem Set#1 Comparative...

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Econ 1 Problem Set #1: Comparative Advantage Fall 2010 1. Suppose that the following the points (AGR,MAN)=(10,30) and (AGR,MAN)=(20,10) lie on society’s production possibilities frontier for manufactured goods and agricultural goods. (For your PPC put AGR on the horizontal axis.) a. Suppose that the PPF satisfies the law of increasing opportunity costs. If society produces 15 units of AGR, what is the most that you can say about the production of MAN? Using a graph, give your reasoning. b. Now, suppose that the PPC satisfies the law of decreasing opportunity costs (perhaps because of learning-by-doing). If society produces 15 units of AGR, what is the most that you can say about the production of MAN? Using a graph, give your reasoning. 2. Consider the production of agricultural goods ( A ) and capital goods ( C ). Assume that society’s production possibilities frontier satisfies the law of increasing opportunity costs and that bundles ( A , C) =(100,0) and ( A , C )=(50,40) are on the production possibilities frontier. If society devoted all of its resources to the
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Econ1-Fall2010-PS1 - Econ 1 Problem Set#1 Comparative...

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