introduction to ecomomics b

24 PART 1: WHAT IS E 19 Consider an economy that produces only for clothing. Its production possibilities bounds, Suppose you own an outdoor recreation company and you want to purchase all-terrain vehicles (ATVs) for shown below. your summer business and snowmobiles for your win- b ter business. Your budget for new vehicles this year is $240 000. ATVs cost $8000 each and snowmobiles cost $12 000 each. a. Draw the budget line for your purchase of new vehicles. b. What is the opportunity cost of one ATV? c. What is the opportunity cost of one snowmobile? d. Does the opportunity cost of one ATV depend on Tonnes of Food per Year A l m N W how many you purchase? Why or why not? 16 Suppose one factory produces residential windows 1 2 3 4 5 6 7 8 and doors. The following scenarios describe various 0 straight-line production possibilities boundaries for Tonnes of Clothing per Year this factory. Each scenario describes the numbers of doors that could be produced in one day if all the fac- a. If the economy is at point a, how many tonnes tory's resources were devoted to producing doors and clothing and how many tonnes of food are being the number of windows that could be produced in one produced? At point b? At point c? day if all the factory's resources were devoted to pro- b . What do we know about the use of resources whe ducing windows. For each scenario, calculate the the economy is at point a? At point b? At points opportunity cost to the factory owner of producing c. If the economy is at point b, what is the opportu one extra door. ity cost of producing one more tonne of food a. 1000 windows; 250 doors What is the opportunity cost of producing on b. 500 windows; 500 doors more tonne of clothing? c. 1200 windows; 400 doors d. What do we know about the use of resources d. 942 windows; 697 doors point d? How would it be possible for the econom e. 450 doors; 600 windows to produce at point d? 17 Suppose you and a friend are stranded on an island 19 Consider an economy called Choiceland that has 2 and must gather firewood and catch fish to survive. Through experience, you know that if each of you workers and produces only two goods, X and spends an entire day on either activity, the result is Labour is the only factor of production, but sou given in the following table: workers are better suited to producing X than Y la vice versa). The table below shows the maximum els of output of each good possible from various lev Fish Firewood (bundles) of labour input. You 6 Your friend 3 Number of Workers Annual Number of Annual 8 N Producing X Production Workers Production of X Producing Y of Y a. What is the opportunity cost for you to gather 0 0 250 1300 an additional bundle of firewood? What is your 50 20 200 1200 friend's opportunity cost of gathering an extra bundle of firewood? 100 45 900 b. 150 Assuming that you and your friend specialize, what 150 600 allocation of tasks maximizes total output for your 60 200 100 one day of joint effort? 70 c. Suppose you both decide to work for two days 250 50 350 according to the allocation in part (b). What is 75 0 0 the total amount of output? What would it have been had you chosen the reverse allocation of a. tasks? Draw the production possibilities boundary Choiceland on a scale diagram, with the pro tion of X on the horizontal axis and the product of Y on the vertical axis