/24 Name: Team: 3 26 s. /20 Unit 1: Basic Economic Concepts Total: /100 Problem
ID: 1139178 • Letter: #
Question
/24 Name: Team: 3 26 s. /20 Unit 1: Basic Economic Concepts Total: /100 Problem Set #1 1. Complete each of the following tasks with short paragraphs: A. Define scarcity and explain how it is related to choices and trade-offs 3) B. Fully explain the difference between the following (USE EXAMPLES FOR EACH): i. Trade offs and Opportunity Cost /3) ii. Normative and Positive Economics 3) vi. Free Markct and Centrally Planned 3) iii. Price and Cost 3) v. Allocative and Productive Efficiency 3) vii. Resource Markets and Product MarketsC /3) /3) 2. Draw a Production Possibilities Graph for Toyota using the following information:5) iv. Consumer Goods and Capital Goods Trucks 0 20 52 28 49 35 43 43 25 45 0 54 35 A. What are the consequences of Toyota producing at combination A? Combination G? In reality, are cither combinations desirable? Why? Why not? /S) cars and 50 trucks and label it "X." Explain what is happening at these points"( B. Plot the combination with 30 cars and 40 trucks and label it "Y." Plot the combination with 40 /5) C. Explain, with examples, how your graph shows 5 concepts: i. Opportunity cost /2) iv. Law of increasing opportunity cost 2) ii. Both times of efficiency 3) . Economic growth /2) ii Unemployment C/2) 3. Use the PPF-A and PPF-B on the back of this paper to answer the following: A. On PPF-A, what is the opportunity cost from point a to b in terms of ukuleles? What is the opportunity cost from moving from b to c? Explain why this occurs? /5) B. On PPF-B, calculate the total opportunity cost from a to b, b to c, e to f. Fully explain why the opportunity cost is increasing? /5) C. Calculate the PER UNIT OPPORTUNITY COST from moving from c to e and from e to c/5) 4. Practice FRQs /15) 5. The following figures represent the amount that can be produced with a fixed amount of factor inputs. Bananas 100 160 Which country has the absolute advantage in bananas? Which country has the absolute Sugarcane 50 40 Panama Honduras A. advantage in sugarcane? Explain how you arrive at that answer? /5) opportunity cost for producing one unit of sugarcane? /5) advantage in sugarcane? Should these countries trade? If so, how? 5) B. What is Panama's opportunity cost for producing one unit of bananas? What is Honduras's C. Which country has the comparative advantage in bananas? Which country has the comparative D. Identify a terms of trade that benefits both countries? Explain why this will benefit PanamaExplanation / Answer
Student has not specified which question is to be solved. Hence solving first four parts of question one.
1.A. Define scarcity and how is it related to choices and trade offs.
Human wants are unlimited and resources are limited. These limited resources are nothing but shortage. Shortage of money, natural resources, man-made resources etc. When wants are unlimited and resources are limited, people need to make choice. Example in $ 10 I cannot buy pair of shoes and air ticket too. Hence, I need to limit my choice to one thing. Tis is called choice. The trade off of one commodity with the other is called opportunity cost. It is also called next best alternative foregone.A t-shirt sacrificed for pair of shoes is called opportunity cost of a pair of shoes.
B. Explain difference between the following:
i. Trade off and Opportunity Cost (OC): A scarcity leads to choice. This choice is nothing but trade off. In economics this trade off is called as opportunity cost. Trade off is a process and OC is a terminology.
ii. Normative and positive economics: Positive science explain what things are and normative things explain what things should be. Mathematics is considered to be a positive science and econmics is a normative science. Economics however, can make positive statements also like inflation rate of 5 %.
iii. Price and cost: A monetary value charged by producer and many a times mentioned on poduct is price. A monetary Value incurred while making a product is called as its cost. Generally price is more than the cost to achieve profit.
iv. Consumer goods and capital goods: Goods used by final consumers like pair oof footwear or a bread is called as consumer goods. Capital goods are used to make consumer goods. Machinery is an example of capital good.
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