ECON 211
ANSWER KEY for Problem Set #1
Spring 2007
1.
Problem #4, Parkin, pg. 16
.
Answer
:
The opportunity cost of taking this trip is $550 plus 8 hours of study time.
The opportunity cost is the highestvalued activity that you will give up by going skiing for the
weekend. In taking the trip, you’ll forgo all the goods and services that you could have bought with
the income from your weekend job ($100) plus your expenditure on travel and accommodation
($350), food ($40), and ski rental ($60). You’ll also forgo 8 hours of study time.
2.
Tom is stranded on a desert island and can either fish or harvest dates. Six points on his
production possibilities frontier are given in table below.
a)
Plot
these
possibilities on a
“Dates gatheredFish
caught” grid, label
the points, and draw
the PPF.
b)
If Tom moves from
possibility C to D, what is the opportunity cost per fish?
c)
In general, what happens to the opportunity cost of a fish as more fish are caught?
What about the opportunity cost of dates as more dates are harvested?
d)
Based on the original PPF you plotted, is a combination of 40 dates and 1 fish
attainable? Is this combination an efficient one? Explain.
Tom’s Production Possibilities
Possibility
Dates gathered
Fish caught
A
54
0
B
50
1
C
42
2
D
32
3
E
20
4
F
0
5
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Answer
:
(a) Picture showing Tom’s
production possibilities in the left.
(b) The opportunity cost of the 3
rd
fish is 10 dates gathered.
(c) The opportunity cost of a fish
increases as more fish are caught.
Similarly, the opportunity cost of
dates also increases as more dates
are gathered.
(d) Yes, 40 dates and 1 fish is
attainable as is shown in the picture
by the point K. However, it is not
an efficient combination. In fact,
you can do better. If you use all
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 Spring '08
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 Opportunity Cost, Supply And Demand, DVD, DVD players, DVD player

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