4d . Low-wage Asian workers would also be hurt by this policy. The Asian country would channel its resources away from producing clothing toward producing other goods that it previously imported from America. But since it does not have the comparative advantage in those other goods, the Asian country would be able to consume less of all goods. 5a. True. This is a positive statement because it has a factual answer that can be proven through data. 5b. False. This is a statement about what we should do, and it has no clearly right or wrong answer. Your view will depend on whether you think encouraging more work is a good or bad idea. 5c. True, because the very fundamental principle for Economics is the assumption that people make rational decisions. Society sometimes don't make rational decisions, rather they make emotional decisions. Thus the results sometimes defies the logics of Economics. 5d. False. This is a positive statement. In principle, it has an answer that is either right or wrong. 5e. False. Economists disagree with each other all the time. They might have the same basic economic theories, but applying them will often result in difference of opinions. 6. Long run growth depends on the number and skill of the labor force, technology, capital investment, and infrastructure and a business cycle expansion occurs when the unused resources are put back to work. 7. True. With hindsight it is easier to see the important features of the situation that a model should have captured. For predictive purposes, a model needs to anticipate which features of reality are important (and so should be included) and which are unimportant (and so can be ignored). This is why the famed British economist John Maynard Keynes referred to economics as an art as well as a science. 8a. 8b. No, Atlantis cannot produce 500 pounds of fish and 800 pounds of potatoes. If it produces 500 pounds of fish, the most potatoes it can produce is 600 pounds. This point would lie outside the production possibility curve, at point G on the diagram.
8c. The opportunity cost of increasing output from 600 to 800 pounds of potatoes is 200 pounds of fish. If Atlantis increases output from 600 to 800 pounds of potatoes, it has to cut fish production from 500 pounds to 300 pounds, that is, by 200 pounds. 8d. The opportunity cost of increasing output from 200 to 400 pounds of potatoes is 50 pounds of fish. If Atlantis increases output from 200 to 400 pounds of potatoes, it has to cut fish production from 650 pounds to 600 pounds, that is, by 50 pounds. 8e. The answers to parts c and d imply that the more potatoes Atlantis produces, the higher the opportunity cost becomes. For instance, as you grow more and more potatoes, you have to use less and less suitable land to do so. As a result, you have to divert increasingly more resources
You've reached the end of your free preview.
Want to read all 6 pages?
- Spring '08