1. Below is the production possibilities table for the country of Duneland.
(a) Use the information in the table to draw the production possibilities curve (PPC) for Duneland. Put tanks on the horizontal axis.
(b) What is the cost to Duneland of moving from point A to point B on its PPC? And of moving from point E to point F?
(c) What general economic principle is being illustrated by your answers to part (b) above? Explain.
2. Below is a picture of a production possibilities curve that shows two products Professor Jeff might produce during any given day.
Does this PPC illustrate the principle of increasing marginal opportunity cost? Explain.
3. The Bahamas and India produce both pineapple and rice (both measured in tons). The table below illustrates their production possibilities.
(a) In the Bahamas, what is the opportunity cost of a ton of pineapples, and of a ton of rice?
(b) In India, what is the opportunity cost of a ton of pineapple, and of a ton of rice?
(c) Which country has a comparative advantage in the production of pineapple?
(d) Show how if each country specialized in that good for which it has a comparative advantage and split the resulting production, each would be able to consume more than if they did not trade.
4. Consider the supply and demand schedules below to answer the questions that follow:
(a) In a free market, what will the equilibrium price be?
(b) What will the equilibrium quantity demanded, and quantity supplied be?
(c) If price were $2, what would happen? (Discuss in terms of adjustment to equilibrium.)
(d) If price were $7, what would happen? (Discuss in terms of adjustment to equilibrium.)
(e) If price were $5, what would happen? (Discuss in terms of adjustment to equilibrium.)
5. The table below shows the quantity demanded and quantity supplied of DVDs at each price level.
(a) Fill out the column entitled Surplus/Shortage.
(b) What are the equilibrium price and equilibrium quantity in this market?
(c) Suppose that consumers’ taste changed in favor of DVDs due to their high quality. What happens at the original equilibrium price level calculated in Part (b)?
(d) Suppose that advances in technology reduced the production cost of DVD players. What happens at the original equilibrium price level calculated in Part (b)?
Theme Verses: Prov. 6:6-8; Luke 19 Luke 10:7; Mat. 20:1-15
- Modern Principles of Economics, 3rd Edition (New York: Worth Publishers, 2016), Tyler Cowen and Alex Tabarrock.