Intro To Macroeconomics Worksheet With Answer Key (Page 3 of 4) in pdf

Intro To Macroeconomics Worksheet With Answer Key Page 3

10.

The Rancher has a comparative advantage in

a. neither good, and the Farmer has a comparative advantage in both goods.

b. both goods, and the Farmer has a comparative advantage in neither good.

c. meat, and the Farmer has a comparative advantage in potatoes.

d. potatoes, and the Farmer has a comparative advantage in meat.

ANSWER: c.

meat, and the Farmer has a comparative advantage in potatoes.

PROBLEMS and APPLICATIONS (10 points each problem):

Production Possibility Frontier

11.

Draw a production possibilities frontier showing increasing opportunity cost for hammers and

horseshoes (You should have two graphs).

a. On a graph, identify the area of feasible outcomes and the area of infeasible outcomes.

b. On the same graph, label a point that’s efficient as point “E” and a point that inefficient as point

“I”.

c. On the same graph, illustrate the effect of the discovery of a new vein of iron ore, a resource

needed to make both horseshoes and hammers, on this economy.

d. On a separate graph for hammers and horseshoes, illustrate the effect a new computerized

assembly line in the production of hammers would have.

12.

p. 57, Problems and Applications, Q2:

a. Draw Maria’s production possibilities frontier for reading economics and sociology.

b. What is Maria’s opportunity cost of reading 100 pages of sociology?

See p. 49, for help. We also went over a problem like this in class. If Maria spends all five hours

studying economics, she can read 100 pages, so that is the vertical intercept of the

production possibilities frontier. If she spends all five hours studying sociology, she can

read 250 pages, so that is the horizontal intercept. The time costs are constant, so the

production possibilities frontier is a straight line.

Intro To Macroeconomics Worksheet With Answer Key Page 3