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HW1 9-14-09 - ECO 304K INTRO MICRO FALL 2009 Hickenbottom...

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ECO 304K INTRO MICRO FALL 2009 Hickenbottom HOMEWORK #1 (Due September 14 th ) 1. There is an economy consisting of only two people, Fred and Robin, who produce and consume two goods: fruit juice and honey. In 1 week, Robin can produce 25 units of fruit juice or 5 units of honey. Fred can produce 9 units of fruit juice or 3 units of honey. 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 week’s production of the economy with fruit juice 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 Robin having 11 units of fruit juice and 3 units of honey and Fred having 4 units of fruit juice and 2 units of honey is not possible without trade. Describe the production of each person and the trade that makes this outcome possible. (1 point) 2.
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