fwk-rittenberg-sol-ch02-confronting-scarcity-choices-p

fwk-rittenberg-sol-ch02-confronting-scarcity-choices-p -...

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© 2010 Flat World Knowledge, Inc. 1 Solutions for Chapter 2 Confronting Scarcity—Choices in Production Concept Problems 1. Human capital is the skill a worker has as a result of education, training, or experience that can be used in production. A college education provides additional training in the areas of verbal, writing, speaking, computing, and analytical skills. In addition, a college education provides opportunity for students to work in teams, an element of human capital very much in demand in the modern, global economy. 2. A downward-sloping production possibilities curve shows that in order to obtain more of one good (or service), another must be forgone. That is the meaning of scarcity—the situation where we are forced to choose among alternatives. 3. The law of increasing opportunity costs holds that as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will increase. That is what is shown on a bowed-out production possibilities curve—its slope gets steeper and steeper. To get additional units of one good, more and more of the other good must be given up. 4. When resources are allocated according to comparative advantage, specialized resources are allocated to the production of a specific good. If more of that good is produced, less specialized resources, with comparative advantage
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© 2010 Flat World Knowledge, Inc. 2 in other goods, will have to be used. This necessarily means that the cost of producing additional units will increase, just as the law of increasing opportunity costs predicts. 5. The opportunity cost of producing good B is given by the absolute value of the slope of the production possibilities curve. The opportunity cost of producing good B is increased as indicated by the greater slope of curve ST at point E’ than was the slope (in absolute value) on curve RT at point E. 6.
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