Practice Questions: Question 1: The following table shows the ... - AWS
Practice Questions: Question 1: The following table shows the maximum production combinations of fries and kombucha that can be produced for the economy of WinterIsComing. Linear combinations of fries and kombucha in between points in the table are also possible. Fries (bags) 0 10 20 30 40 50 60
Kombucha (bottles) 120 100 80 60 40 20 0
a) Plot the PPF for WinterIsComing (plot fries on the horizontal axis): 140
120
Kombucha
100
80
60
40
20
0 0
10
20
30
40
50
60
70
Fries
1
b) Can WinterIsComing make 8 bags of fries and 95 bottles of kombucha? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
c) Can WinterIsComing make 35 bags of fries and 60 bottles of kombucha? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
d) Calculate the opportunity cost of making fries.
e) Calculate the opportunity cost of making kombucha.
2
Question 2: The following table shows the maximum production combinations of burgers and kale that can be produced by the economy of Starboy. Linear combinations of burgers and kale in between points in the table are also possible. Burgers 0 10 20 30 40 50 60 70
Kale (bundles) 1000 930 840 730 600 420 230 0
a) Plot the PPF for Starboy (plot kale on the vertical axis): 1200
1000
Kale
800
600
400
200
0 0
10
20
30
40
50
60
70
80
Burgers
3
b) Can Starboy make 55 burgers and 400 bundles of kale? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
c) Can Starboy make 5 burgers and 995 bundles of kale? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
d) Calculate the opportunity cost (per unit basis) of increasing burger output from 40 to 50?
e) Calculate the opportunity cost of (per unit basis) of increasing kale output from 840 bundles to 930 bundles.
4
Question 3: Suppose there are only two goods in the world: shoes and laptops. If the economy of Warriors can make more of both goods than any other economy, then there is no benefit for Warriors from trading with others since no other economy can produce as many shoes or laptops. Do you agree? Please explain.
Question 4: When considering which product to specialize in, a country should specialize in the product that it has an absolute advantage in producing. Do you agree? Please explain.
5
Question 5: What does the PPF show and represent? Why is the PPF bounded (ie. why is there a frontier / border)? What can shift the PPF to the right?
Question 6: Explain why a production combination inside the PPF is inefficient.
6
Question 7: The following table shows the maximum production combinations (in bottles) of IPA and milk that can be produced by County A and County B. The bold production combinations are what each country is producing at the moment. Country A IPA 0 50 100 150 200 250 300
Country B Milk 600 500 400 300 200 100 0
IPA 0 15 30 45 60 75 90
Milk 420 350 280 210 140 70 0
a) Graph the PPF for both countries in the spaces below. Country A 700
600
500
Milk
400
300
200
100
0 0
50
100
150
200
250
300
350
IPA
7
Country B 450 400 350 300
Milk
250 200 150 100 50 0 0
10
20
30
40
50
60
70
80
90
100
IPA
b) Calculate the opportunity costs of producing one additional bottle of milk for each country.
8
c) Calculate the opportunity costs of producing one additional bottle of IPA for each country.
d) Which country has the absolute advantage in producing each good?
e) Which country has the comparative advantage in producing each good?
9
f) What should Country A and B each specialize in producing?
g) Given each country specializes in producing the good in part f, propose a trade that will make everybody better off than what each is currently producing without trade.
10
Question 8: There are two rival groups in a place far, far away: the Jedi and the Sith. Only two goods are produced: hooded robes and lightsabers. The Jedi can produce 40 hooded robes and no lightsabers; or 55 lightsabers and no hooded robes; or any combination in between. On the other side, the Sith can produce 50 hooded robes and no lightsabers; or 40 lightsabers and no robes; or any combination in between. a) Graph the PPF for both groups in the spaces below. Assume both PPFs are linear. 90 80 70
Lightsabers
60 50 40 30 20 10 0 0
10
20
30
40
50
60
Hooded Robes
b) Which group has a comparative advantage in making hooded robes and which has a comparative advantage in making lightsabers?
11
c) There’s been a forceful technological breakthrough for the Sith that now allows them to double their lightsabers production. Draw the Sith’s new PPF. 90 80 70
Lightsabers
60 50 40 30 20 10 0 0
10
20
30
40
50
60
Hooded Robes
12
c) After the forceful technological breakthrough for the Sith, which group has a comparative advantage in making hooded robes and which has a comparative advantage in making lightsabers?
13
Kombucha (bottles) 120 100 80 60 40 20 0
a) Plot the PPF for WinterIsComing (plot fries on the horizontal axis): 140
120
Kombucha
100
80
60
40
20
0 0
10
20
30
40
50
60
70
Fries
1
b) Can WinterIsComing make 8 bags of fries and 95 bottles of kombucha? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
c) Can WinterIsComing make 35 bags of fries and 60 bottles of kombucha? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
d) Calculate the opportunity cost of making fries.
e) Calculate the opportunity cost of making kombucha.
2
Question 2: The following table shows the maximum production combinations of burgers and kale that can be produced by the economy of Starboy. Linear combinations of burgers and kale in between points in the table are also possible. Burgers 0 10 20 30 40 50 60 70
Kale (bundles) 1000 930 840 730 600 420 230 0
a) Plot the PPF for Starboy (plot kale on the vertical axis): 1200
1000
Kale
800
600
400
200
0 0
10
20
30
40
50
60
70
80
Burgers
3
b) Can Starboy make 55 burgers and 400 bundles of kale? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
c) Can Starboy make 5 burgers and 995 bundles of kale? Where would this combination lie on the graph? Comment on this production combination relative to the PPF.
d) Calculate the opportunity cost (per unit basis) of increasing burger output from 40 to 50?
e) Calculate the opportunity cost of (per unit basis) of increasing kale output from 840 bundles to 930 bundles.
4
Question 3: Suppose there are only two goods in the world: shoes and laptops. If the economy of Warriors can make more of both goods than any other economy, then there is no benefit for Warriors from trading with others since no other economy can produce as many shoes or laptops. Do you agree? Please explain.
Question 4: When considering which product to specialize in, a country should specialize in the product that it has an absolute advantage in producing. Do you agree? Please explain.
5
Question 5: What does the PPF show and represent? Why is the PPF bounded (ie. why is there a frontier / border)? What can shift the PPF to the right?
Question 6: Explain why a production combination inside the PPF is inefficient.
6
Question 7: The following table shows the maximum production combinations (in bottles) of IPA and milk that can be produced by County A and County B. The bold production combinations are what each country is producing at the moment. Country A IPA 0 50 100 150 200 250 300
Country B Milk 600 500 400 300 200 100 0
IPA 0 15 30 45 60 75 90
Milk 420 350 280 210 140 70 0
a) Graph the PPF for both countries in the spaces below. Country A 700
600
500
Milk
400
300
200
100
0 0
50
100
150
200
250
300
350
IPA
7
Country B 450 400 350 300
Milk
250 200 150 100 50 0 0
10
20
30
40
50
60
70
80
90
100
IPA
b) Calculate the opportunity costs of producing one additional bottle of milk for each country.
8
c) Calculate the opportunity costs of producing one additional bottle of IPA for each country.
d) Which country has the absolute advantage in producing each good?
e) Which country has the comparative advantage in producing each good?
9
f) What should Country A and B each specialize in producing?
g) Given each country specializes in producing the good in part f, propose a trade that will make everybody better off than what each is currently producing without trade.
10
Question 8: There are two rival groups in a place far, far away: the Jedi and the Sith. Only two goods are produced: hooded robes and lightsabers. The Jedi can produce 40 hooded robes and no lightsabers; or 55 lightsabers and no hooded robes; or any combination in between. On the other side, the Sith can produce 50 hooded robes and no lightsabers; or 40 lightsabers and no robes; or any combination in between. a) Graph the PPF for both groups in the spaces below. Assume both PPFs are linear. 90 80 70
Lightsabers
60 50 40 30 20 10 0 0
10
20
30
40
50
60
Hooded Robes
b) Which group has a comparative advantage in making hooded robes and which has a comparative advantage in making lightsabers?
11
c) There’s been a forceful technological breakthrough for the Sith that now allows them to double their lightsabers production. Draw the Sith’s new PPF. 90 80 70
Lightsabers
60 50 40 30 20 10 0 0
10
20
30
40
50
60
Hooded Robes
12
c) After the forceful technological breakthrough for the Sith, which group has a comparative advantage in making hooded robes and which has a comparative advantage in making lightsabers?
13
