Problem Set #1
Opportunity Costs and Scarcity
- Please graph the relationships between the variables listed below. Choose your own units and scales for the axes. Label your axes but your drawing need not be perfectly to scale. In one sentence, please describe the relationship.
- Hours spent per week in varsity sports at PSU and a student’s grade point average;
- Temperature at a beach and number of people at the beach;
- Application of water (in gallons per week) and growth (in inches per week) of corn plants observed in a field of corn;2.
2. Maria can read 20 pages of economics an hour. She can also read 50 pages of sociology an hour. She spends 5 hours per day studying
a. Draw Maria’s production possibilities frontier for reading economics and sociology. Please discuss the shape of your PPF and explain why it represents the above tradeoffs.
b. What is Maria’s opportunity cost of reading 100 pages of sociology? Please explain in words.
- Capitalizing on its natural advantages, Oregon focuses on tourism and pinot noir grapes. The possible production combinations are given in the table below.
Year 2019 Production Possibilities in Oregon
|Tourists serviced per year (thousands)||Grapes produced in tons per year
- Plot a graph of the production possibilities frontier for the economy.
- Does the principle of increasing opportunity cost hold in this case? Please explain
- Plot a point on the graph that you think might represent a possible consumption point (recall that the actual point chosen will depend not only on scarcity and opportunity cost, but also on peoples’ preferences).
- Suppose half the grape pickers go on strike, reducing output by half. How would this affect the graph? Plot a point or redraw the graph to represent this development.
- Suppose that a new more productive pinot noir grape variety is developed that boosts grape production by 10%. Alter the table above to reflect this technological development and show on your graph.
Below please find the production possibilities frontiers (PPFs) of Ghana and Spain.
Ghana PPF Spain PPF
|Possible Combinations||Possible Combinations|
- Given these PPFs, which country would you predict would specialize in each good? Why?
- Suppose a free trade deal is negotiated. What is the range of potential terms of trade?
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