Review Questions

# Review Questions - Production Possibilities Frontiers Let y...

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Production Possibilities Frontiers Let y denote the number of holes dug in the yard per hour while x denotes the number of chewed up shrubs per hour. Say we are interested in digging holes and chewing up shrubs. Suppose the PPF of Nell for goods x and y is given by y = 5-x. Suppose the PPF of Reese for goods x and y is given by y = 1-5x. A. In the same graph, draw both Nell’s and Reese’s PPFs. B. Who has the comparative advantage in digging holes in the yard? Who has the comparative advantage in the chewing of shrubs? Does either dog have an absolute advantage (better at both of the things)? C. Draw the dogs joint PPF. D. How could the dogs produce more (of a mess) by specializing in production? Demand and Supply A. Suppose the demand curve for a particular good is given by P=10-2Q while our supply curve for this good is given by P=2Q. What is the equilibrium price and quantity for this good? Why is this outcome the efficient one? B. Suppose that the price of a substitute good decreases. What would you expect this to change the equilibrium price and quantity in this case? C. Suppose that the government places a tax on an input used in production. What will happen to the equilibrium price and quantity in this case? Taxes A. Suppose the government places a subsidy of \$S per unit on the production of ethanol, a substitute for gasoline. In which direction would the supply curve shift? How does this affect the opportunity cost of producing ethanol? Draw on a graph, exactly how this would shift the supply curve. B.

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## This note was uploaded on 04/07/2008 for the course ECON 201 taught by Professor Williams during the Fall '08 term at UVA.

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Review Questions - Production Possibilities Frontiers Let y...

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