HW2 - Chapter 2.docx - HW2 u2013 Chapter 2 Economic Models...

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HW2 – Chapter 2: Economic Models: Trade-offs and Trade 1. Why is the shape of the production possibilities frontier (PPF) often curved instead of straight? The productive efficiency of an economy decreases as it moves from left to right along the PPF. Because the production possibilities frontier is based on the productive capabilities, and of a nation overall, rather than the productive capacity of an individual. To take a potential sunk cost into account, the PPF is curved to distribute the burden of the sunk cost based on allocative efficiency. Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for. 2. Christine and Paul are deciding how to split their time between writing music and lyrics for their new album. Their PPFs for 72 h of work are shown. Christine and Paul have to write music for 8 songs and lyrics for 12 songs (4 songs already have music). When they are done, they can go to a private island and relax from all their hard work. It is possible that they will use more than 72 h. Once they start writing lyrics and music, assuming their hired help packs for them and their plane is waiting outside their
door, in how many hours can they board the plane to their relaxing island getaway? 96 h. Christine will write music for 0 songs. Paul will write music for 8 songs. Christine will write lyrics for 12 songs. Paul will write lyrics for 0 songs. 3. The accompanying graph contains the production possibilities frontier (PPF) for Rubberland. Rubberland only makes two products, rubber band balls and rubber hoses, and on a given day can produce according to the PPF in the graph. Point A on the PPF represents the combination of the two goods Rubberland currently produces. When a new method of rubber processing is discovered, the productivity of all Rubberland's inputs increases. Please shift the PPF to show this change. Assume that Rubberland does not make more rubber band balls than they originally made at point A but still maximize their productive capabilities. Move point A to their new production point. How many more rubber hoses do they now produce per day than before? 20 more hoses per day 4. Classify each statement as true or false by dragging it into the corresponding category. True
When two countries choose to partake in international trade, it is a mutually beneficial activity for both countries.

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