Principles Of Microeconomics Worksheet With Answer Key - Professor Dowell, Cosumnes River College Page 2
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1
2
3
4e. What two factors might shift the production possibilities frontier for this country? State what
the factor is and then give an example related to the production of sugar and coconuts.
Increased labor (say from immigration) – more labor with given land would increase
production. Improvements in harvesting technology would have the same effect.
2. Explain how a production possibility curve for agriculture goods and manufacturing goods
would shift after each of the events described below:
a. A drought in the Midwest reduces agricultural yield per acre.
It would shift or rotate inward along the axis labeled “agricultural goods.”
b. Advances in computer technology lower the cost of producing manufactured goods but
do not affect the cost of producing agricultural goods.
It would shift or rotate outward along the axis labeled “manufacturing goods.”
c. Civil war disrupts the production of all goods equally in the United States.
It would shift in along both axes.
3. A clothing accessory company produces scarves and earrings. Below are the production
possibility combinations it can produce with the resources that it has.
Point
Scarves
Earrings
a. Draw the production possibility curve in the space below
placing “earrings” on the vertical axis.
a
10
0
260
240
b
9
50
220
c
8
90
200
d
7
120
180
160
e
6
145
140
f
5
165
120
100
g
4
185
80
h
3
200
60
i
2
215
40
20
j
1
225
0
0
1
2
3
4
5
6
7
8
9
10
11
k
0
230
Scarves
b. Suppose technological advances increase production of both earrings and scarves by 10%
without increasing costs. Demonstrate the effect of this innovation on the production
possibility curve you drew above.
c. What is the slope of the PPF between points e and f? What does this slope mean?
rise
145
165
slope
20
run
6
5
This means we must give up 20 pairs of earrings to get one scarf.
d. Suppose the slope of the PPF were constant. (It isn’t) If it were, what would this
indicate?
It would indicate constant opportunity cost.
Principles of Microeconomics: Problem Set 1 Solutions
Page 2
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