HW1_anskeys - HW1 (Chapter 1 and Chapter 2) Answer Keys...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
HW1 (Chapter 1 and Chapter 2) – Answer Keys Part I. Multiple Choice Questions – Choose the best answer. (40%) 1. C. 2. A. 3. D. 4. D. 5. B. 6. D. 7. C. 8. A. 9. B. 10. D. Part II. Short Answer Questions (60%) 1. a. Draw a graph of Brazil’s PPF and explain how your graph illustrates scarcity. Ans : Figure 2.1 shows Brazil’s PPF. The production possibilities frontier itself indicates scarcity because it shows the limits to what can be produced. In particular, production combinations of ethanol and food crops that lie beyond the production possibilities frontier are not attainable. b. If Brazil produces 40 barrels of ethanol a day, how much food must it produce if it achieves production efficiency? Ans: If Brazil produces 40 barrels of ethanol per day, it achieves production efficiency if it also produces 3 tons of food per day. c. Why does Brazil face a tradeoff on its PPF?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Ans: Brazil faces a tradeoff on its PPF because Brazil’s resources and technology are limited. For Brazil to produce more of one good, it must shift factors of production away from the other good. Therefore to increase production of one good requires decreasing production of the other good, which reflects a tradeoff. d. If Brazil increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of the additional ethanol? Ans: When Brazil is production efficient and increases its production of ethanol from 40 barrels per day to 54 barrels per day, it must decrease its production of food crops from 3 tons per day to 2 tons per day. Hence the opportunity cost of the additional ethanol is 1 ton of food per day for the entire 14 barrels of ethanol or 1/14 of a ton of food per barrel of ethanol. e. If Brazil increases its production of food crops from 2 tons per day to 3 tons per day, what is the opportunity cost of the additional food? Ans: When Brazil is production efficient and increases its production of food crops from 2 tons per day to 3 tons per day, it must decrease its production of ethanol from 54 barrels per day to 40 barrels per day. Hence the opportunity cost of the additional 1 ton of food crops is 14 barrels of ethanol. f. What is the relationship between your answers to d and e? Ans: The opportunity costs are reciprocals of each other. That is, the opportunity cost of 1 ton of food crops is 14 barrels of ethanol and the opportunity cost of 1 barrel of ethanol is 1/14 of a ton of food crops. g. Does Brazil face an increasing opportunity cost of ethanol? What feature of the PPF
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/13/2012 for the course ECO 201 taught by Professor Dunlevy during the Fall '08 term at Miami University.

Page1 / 6

HW1_anskeys - HW1 (Chapter 1 and Chapter 2) Answer Keys...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online