ECO 201 Problems Chapter 1, Fall 2017

Handout Chapter 2: The Economic Problem: Scarcity and Choice PROBLEM 1: Below is a production possibilities table for consumer goods (automobiles) and capital goods (Forklifts) Type of Production Alternatives Production Automobiles | 0 2 4 6 |8 Forklifts 30 | 27 | 21 | 12)0 1. Show these data graphically. Upon what specific assumptions is this production possibilities curve based? If the economy is at point C, what is the cost of two more automobiles? Of six more forklifts? Explain how the production possibilities curve reflects the law of increasing opportunity costs. 3. If the economy characterized by this production possibilities table and curve were_ producing 3 automobiles and 20 fork lifts, what could you conclude about its use of available resources? 4,What would production at a point outside the production possibilities curve indicate? What must occur before the economy can attain such a level of production? s. Suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities curve. Now assume that a technological advance occurs in producing automobiles but not in producing forklifts. Draw the new production possibilities curve. Now draw a production possibilities curve that reflects technological improvement in the production of both products. 6. Explain how (if at all) each of the following affects the location of a country’s production possibilities curve: a. The quality of education increases. b. The number of unemployed workers increases. « A devastating earthquake destroys numerous production facilities.