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# PS-2 - METU Department of Economics Econ 101 Introduction...

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1 METU Department of Economics Econ 101 Introduction to Economics I All sections Fall 2009 PROBLEM SET # 2 (CHAPTER 1 & CHAPTER 2) PART A: PROBLEMS 1. According to the information given below: Combination Meat Wheat (units) (units) A 0 1000 B 100 900 C 200 700 D 300 400 E 400 0 a. Draw the production possibility frontier (PPF) (put meat on the x-axis) b. The production possibilities frontier is _______to the origin.. (concave /convex) c. Can this economy produce 200 units of meat and 600 units of wheat? d. Can this economy produce 200 units of meat and 800 units of wheat? e. What is the opportunity cost of increasing meat production from 100 units to 200 units (i.e. if the economy moves from combination B to combination C)? What is the opportunity cost per unit of meat? f. What is the opportunity cost of increasing meat production from 200 units to 300 units (i.e. if the economy moves from combination C to combination D)? What is the opportunity cost per unit of meat? g. Does the principle of “increasing opportunity cost” hold in this economy?

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2 2. Fill in the blanks according to the figure below: a. If this economy is producing 80 units of roses, the maximum amount of guns that can be produced is ______. b. The maximum quantity of roses that can be produced is ______. c. Assume that production takes place at point c. The opportunity cost of increasing the production of guns to 80 units is _______. d. Assume that production takes place at point g. The opportunity cost of increasing the production of guns to 80 units is ________. e. Assume that production takes place at point a. The opportunity cost of increasing the production of roses to 80 units is ________. f. Assume that production takes place at point e. The opportunity cost of increasing the production of roses to 80 units is ________. g. The efficient point(s) is/are ________ h. The inefficient point(s) is/are ________ i. The unattainable point(s) is/are ________ j. The attainable point(s) is/are ________ 3. How do the following events affect the PPF of a country, which produces only two goods, X and Y? a. A new law is passed which has decreased the retirement age from 65 to 55. b. An earthquake has destroyed most of the production facilities and has killed many people. 0 40 80 120 140 Roses (units) Guns (units) 130 120 80 30 a d e b g c
3 c. A technological advance has increased the efficiency of workers in the good X industry. d. A large number of workers have immigrated into this country.

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