Homework 2.2 The Production Possibilities Frontier and Social Choices

If the production of sugarcane increases from point A to point B, what is the opportunity cost?

$10\text{ thousand tons of oranges}$ With an increase in sugarcane from point A to point B (0 to 25 thousand tons of sugarcane), the production of oranges moves from 40 thousand to 30 thousand tons of oranges. Therefore, the opportunity cost is 10 thousand tons of oranges.

What is the opportunity cost of increasing the number of televisions produced by 4, moving from point B to point C?

$2\ computer\left(s\right)$ As we move back up the PPF, a trade-off occurs if we want to produce more televisions and fewer computers. To increase production from 5 to 9 televisions, the opportunity cost - i.e. what we give up - is 2 computers.

Which of the following situations would be most accurately depicted by a production possibilities frontier? Correct! You nailed it. Molly has $20 from her allowance that she can spend on iTunes movies ($5 per movie) or downloading music ($0.99 per song). A country has a set budget to purchase either coffee or macadamia nuts from Hawaii. Jeremy is deciding whether to buy apples or oranges at the grocery store for his lunch. A country is debating whether its resources should be used in producing cars or soybeans.

A country is debating whether its resources should be used in producing cars or soybeans. The PPF shows the possible combinations of soybeans and cars that can be produced with the country's current resources. All of the other situations above would be better represented by a budget constraint, since they deal with consumption choices.

The opportunity cost of producing one bushel of wheat in Canada is equal to 1/2 TV set. The opportunity cost of producing one bushel of wheat in the US is 2 TV sets. If these two countries specialize according to comparative advantage and then trade with each other

Canada will export wheat and import televisions Since the opportunity cost of producing wheat is lower in Canada, it has comparative advantage in wheat production and will specialize in producing and exporting wheat in exchange for TVs produced in the US.

The law of diminishing returns states that as more variable inputs are added to production, the productivity of these inputs increases.

False The law of diminishing returns establishes a negative relationship between input resources and productivity. As more variable inputs are added to a fixed resource in production, the productivity of these variable inputs decreases

Which scenarios would be best represented by a budget constraint? There are two correct answers. Great work! That's correct. The government of planet Mars is deciding whether it should focus on producing more spaceships or growing food in orbit. Finn has an allowance to spend on his dog. He must decide whether to spend the allowance on new doggy treats for $10 per bag or new water balls for $3 per ball. Narnia has resources that it can direct towards a combination of healthcare and education. Sam has received a $500 scholarship that he can use for books and tuition.

Finn has an allowance to spend on his dog. He must decide whether to spend the allowance on new doggy treats for $10 per bag or new water balls for $3 per ball. Sam has received a $500 scholarship that he can use for books and tuition. A production possibilities frontier shows the combinations of products that society can produce with its limited resources and reflects diminishing marginal returns, whereas a budget constraint shows the combinations of two goods that an individual can afford to purchase given their budget and the prices of those goods. Finn can spend his allowance on new doggy treats for $10 per bag or new water balls for $3 per ball. Sam has received a $500 scholarship that he can use for books and tuition. Both of these scenarios reflect a consumption decision for an individual based on a budget and fixed prices of two goods, so budget constraints would best represent these situations. The other two situations represent production decisions for entire societies given limited resources; these would be best represented by production possibilities frontiers.

What is the opportunity cost of increasing the production of butter from point F to point G?

Increasing the production of butter by one unit, moving from point F to point G, results in an opportunity cost of 6

What is true of the product combination that satisfies allocative efficiency? It is the combination of products that society most desires. It is one of many combinations of products that use all available resources. It is the combination of products that is most beneficial to the firms, but not buyers. It is a combination of products that is outside of the production possibilities frontier.

It is the combination of products that society most desires. It is one of many combinations of products that use all available resources. Allocative efficiency means that the particular combination of goods and services on the production possibilities frontier that a society produces represents the combination that society most desires. Only one of the productively efficient choices will be the allocatively efficient choice for society as a whole. For a combination to be on the production possibilities frontier, it must represent one of many combinations of products that use all available resources.

According to this production possibility frontier, which choices display productive efficiency?

P, R, and S All countries should want make a choice that shows productive efficiency. A choice that is somewhere on the production possibility frontier rather than inside it is considered productively efficient. Of the choices provided, P, R, and S demonstrate productive efficiency because they are on the PPF.

The opportunity cost of producing one bushel of wheat in Canada is equal to 1/2 computer. The opportunity cost of producing one bushel of wheat in the U.S. is 2 computers. If these two countries specialize according to comparative advantage and then trade with each other, which of the following is an expected outcome? Well done! You got it right. The U.S. will import wheat and export computers. Canada will import wheat and export computers. The U.S. will export computers and wheat. Canada will choose not to trade with the U.S. since it can produce both products at lower costs.

The U.S. will import wheat and export computers. Because Canada can produce wheat at a lower opportunity cost than the U.S., it has a comparative advantage in producing wheat. Therefore, the U.S. will produce and export computers instead of wheat and import the wheat it needs from Canada.

True or False? The opportunity cost of increasing production from 20 cameras to 30 cameras is 4 mobile phones

True In order to move from point B to point C, the economy must move resources from producing mobile phones to cameras. In order to produce 10 more cameras they must move from 7 to 3 mobile phones, thus the the opportunity cost is 4 mobile phones.

As additional increments of marginal resources are added to either healthcare or education, the marginal benefit from those additional increments will decline. What do economists call this pattern? law of supply anti-dumping law law of diminishing returns law of demand

law of diminishing returns This pattern is common enough that economists have given it a name: the law of diminishing returns, which holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline. If on the one hand, very few resources are currently committed to education, then an increase in resources used can bring relatively large gains. On the other hand, if a large number of resources are already committed to education, then committing additional resources will bring relatively smaller gains. The curvature of the production possibilities frontier shows that as we add more resources to education, moving from left to right along the horizontal axis, the original gains are fairly large, but gradually diminish. Thus, the slope of the PPF is relatively flat. By contrast, as we add more resources to healthcare, moving from bottom to top on the vertical axis, the original gains are fairly large, but again gradually diminish. Thus, the slope of the PPF is relatively steep. In this way, the law of diminishing returns produces the outward-bending shape of the production possibilities frontier.