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101hwk1key - ECO 101 830 Principles of Microeconomics 1...

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ECO 101 830 Principles of Microeconomics Homework #1 Answer Kay 1. (6 points) Suppose the country of Mexico produces only two goods: oranges and sweaters. The production possibilities curve is graphed below. a) Consider the four points labeled on the diagram. Describe each point in terms of its attainability (is it possible?) and desirability (is it efficient?). Point A: attainable but not efficient since the economy is not using all of its resources Points B and D: attainable and efficient; on the PPC and using all resources Point C: not attainable given current resources and technology b) Is there one “best” point for the economy to produce at this time ? No. Both B and D are on the PPC and efficient. The best point would depend on society’s preferences for oranges vs. sweaters. c) On the graph above, show how economic growth will affect production possibilities. The PPC will shift out, up and to the right. 2. (6 points)
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