Dr. Barry Haworth
University of Louisville
Department of Economics
Economics 202-01
M/W 9:30-10:45am
Please submit your answers to this homework through the assignment link on Blackboard. No
credit will be given for answers submitted in class or emailed to me.
To access
this homework on Blackboard, do the following. After logging into Blackboard, check
“Assignments” for this class. You should
see a link that says “Homework #1”. By clicking on this link, you should be able
to start answering the homework questions.
Please answer each question and when you are finished, you
may submit your answers for grading. You will not receive credit for
homework that is returned in class. Credit is only given to students
who submit their answers through Blackboard. In addition, please note
that while you can save this homework before submitting it for grading - once
you submit the homework, it is done and you cannot take it back, revise and
resubmit. Remember as well that if you do not submit your homework by the
deadline, then it is considered late. You will not be able to submit
homework through this link once that deadline passes.
Please note the instructions for the various problems in
this section.
Questions 1 and 5
Your answer in each
of the four parts of question #1 and both parts of question #5 below
involve your calculating the opportunity cost of producing a certain good
(e.g. in question #1, it's donuts or
beer). When submitting your answer, please note that your
answer can be "technically correct" but graded as
"wrong" because you didn't follow the formatting directions
below. For grading purposes, a wrong answer is still
wrong - even if your mistake was "only" the result of not following
the formatting directions below. In that
regard, please note the following comments about formatting on Questions #1 and
5.
(i) If you get a fraction for your answer, you can
either leave the fraction as is or you can put your answer in decimal form
(e.g. you can record your answer as 2/10 or 0.2). Do not leave your
answer as a compound fraction or mixed number (e.g. do not write 5/2 as 2 1/2).
(ii) If you record
your answer as a fraction, then you must reduce that fraction to its simplest
form (e.g. record your answer as 2/10 instead of 4/20).
(iii) Except
for 0.25 and 0.75 (see below), all other decimals should be rounded to the
nearest 10th (e.g. 0.1 or 3.4, rather than 0.12 or 3.35).
(iv)
If your answer is 0.25 or 0.75 (only), then record it as 0.25 or
0.75. I.e., do not round 0.25 or 0.75 (only) up to 0.3 or 0.8
respectively.
1. Bart's World and Homer's Island are (different) countries who produce edible treats known as pork rinds and donuts. The PPC for each country is provided below:
|
Bart’s World |
|
Homer’s Island |
|
|
A |
B |
C |
D |
|
|
W |
X |
Y |
Z |
|
Pork rinds |
0 |
300 |
400 |
500 |
|
Pork rinds |
0 |
25 |
75 |
100 |
|
Donuts |
250 |
100 |
50 |
0 |
|
Donuts |
400 |
300 |
100 |
0 |
Bart’s World:
a. moving from pt. B to pt. C, what is the opportunity cost of producing each additional unit of pork rinds?
b. moving from pt. C to pt. B, what is the opportunity cost of producing each additional unit of donut?
Homer’s Island:
c. moving from pt. X to pt. Y, what is the opportunity cost of producing each additional unit of pork rinds?
d. moving from pt. Y to pt. X, what is the opportunity cost of producing each additional unit of donut?
2. Given the information in Question 1 about these two countries, select every correct statement (note: there may be a multiple number of correct statements below).
Note that there is no partial credit on this question – you must get it completely correct, or your answer is incorrect.
(a) Bart’s World has a comparative advantage in producing pork rinds
(b) Bart’s World has a comparative advantage in producing donuts
(c) Homer’s Island has a comparative advantage in producing pork rinds
(d) Homer’s Island has a comparative advantage in producing donuts
(e) Both Homer’s Island and Bart’s World have a comparative advantage in producing pork rinds
(f) Both Homer’s Island and Bart’s World have a comparative advantage in producing donuts
(g) Neither Homer’s Island nor Bart’s World have a comparative advantage in producing pork rinds
(h) Neither Homer’s Island nor Bart’s World have a comparative advantage in producing donuts
3. Assume that decreases in the productivity associated with producing both pork rinds and donuts within Homer’s Island leads to a change in the production possibilities of Homer’s Island. Below, the new PPC for Homer’s Island is given alongside the original PPC for Barts World.
|
Bart’s World |
|
Homer’s Island |
|
|
A |
B |
C |
D |
|
|
W |
X |
Y |
Z |
|
Pork rinds |
0 |
300 |
400 |
500 |
|
Pork rinds |
0 |
20 |
30 |
40 |
|
Donuts |
250 |
100 |
50 |
0 |
|
Donuts |
200 |
100 |
50 |
0 |
Given this change in Homer’s Island, which of the following statements about comparative advantage is correct. Note again, that there may be a multiple number of correct statements below and that there is no partial credit on this question – you must get it completely correct, or your answer is incorrect.
(a) Bart’s World has a comparative advantage in producing pork rinds
(b) Bart’s World has a comparative advantage in producing donuts
(c) Homer’s Island has a comparative advantage in producing pork rinds
(d) Homer’s Island has a comparative advantage in producing donuts
(e) Both Homer’s Island and Bart’s World have a comparative advantage in producing pork rinds
(f) Both Homer’s Island and Bart’s World have a comparative advantage in producing donuts
(g) Neither Homer’s Island nor Bart’s World have a comparative advantage in producing pork rinds
(h) Neither Homer’s Island nor Bart’s World have a comparative advantage in producing donuts
4. The PPC model helps us better understand the concept of economic growth within an economy. To answer this question, you’ll need to read the article “US Economy: Productivity Growth” by Evan Koenig, at the website of the Federal Reserve Bank of Dallas (at http://www.dallasfed.org/eyi/usecon/0003growth.html or go to “Course Documents” at Blackboard and access the file there). Note that there is no partial credit on this question – you must get it completely correct, or your answer is incorrect.
According to this
article, what are the three main (underlying) causes of labor productivity
growth which are cited in the article:
(a) increases in the amount of capital per worker
(b) improvements in the quality of the workforce
(c) migration
(d) increases in the quantity of available public transportation
(e) improvements in technology and the organization of production processes
(f) increases in income
5. The table below represents the production possibilities in a country for producing radishes and turnips.
|
|
A
|
B |
C |
D |
E |
F
|
|
Quantity of Radishes |
0 |
8 |
15 |
21 |
26 |
30 |
Quantity
of Turnips
|
150 |
110 |
75 |
45 |
20 |
0 |
Note that the questions below refer to incremental or marginal opportunity cost.
a. As this economy moves from pt. B to pt. C, what is the opportunity cost of producing each additional unit of radishes?
b. As this economy moves from pt. E to pt. D, what is the opportunity cost of producing each additional unit of turnips?
6. Assume that Country X has a production possibilities curve
(PPC) for gasoline and heating oil, two final goods that are produced
through the refining of crude oil. Assume that on any graph
of this PPC, it’s understood that the quantity of gasoline would be
located on the vertical axis and quantity of heating oil on the horizontal axis. Assume further that a series of events
take place. For each of the events
below, you must determine how that event affects this PPC. I.e., you must match an event on the
left to the effect (“Effect on PPC”) on the right which represents the most
likely effect on Country X’s PPC from that specific event. Note that not every effect will be matched
with an event.
|
Event: |
|
Effect on PPC: |
|
1. How does increased unemployment in gasoline production affect this PPC? |
|
A. Movement from a point inside this PPC to a point that's on the PPC |
|
2. How does increased Winter demand for heating oil, accompanied by no change in unemployment affect this PPC? |
|
B. Movement from a point that's on this PPC to a point inside the PPC |
|
3. How does increased productivity associated with producing gasoline affect the PPC of Country X? |
|
C. Movement between 2 points, up along the PPC (i.e. toward gasoline) |
|
4. How does having workers from Country X migrate into other countries affect the PPC of Country X? |
|
D. Movement between 2 points, down along the PPC (i.e. toward heating oil). |
|
5. How does having technological improvements in the production of both goods affect the PPC of Country X? |
|
E. Increase (shift outward) in the PPC that affects both goods |
|
6. How does having War in Country X, which leads to the destruction of oil industry capital, affect the PPC of Country X? |
|
F. Decrease (shift inward) in the PPC that affects both goods |
|
7. How does a decrease in unemployment in the production of both gasoline and heating oil affect this PPC? |
|
G. Increase (pivot outward) in the PPC that affects only gasoline |
|
8. How does foreign direct investment in Country X affect this PPC, where U.S. investors add capital to the existing capital stock of the gasoline and heating oil producing firms within Country X. |
|
H. Increase (pivot outward) in the PPC that affects only heating oil |
|
|
|
I. Decrease (pivot inward) in the PPC that affects only gasoline |
|
|
|
J. Decrease (pivot inward) in the PPC that affects only heating oil |