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Reviews There are no reviews yet. If resources are used to produce consumer non-durables and if little capital is produced, then future generations will be worse off. Economic Questions What basic economic questions must be answered in a barter economy? In a primitive economy? In a capitalist economy?
In a command economy? All of the listed types of economies face the same three basic questions: what goods and services to produce, how to produce those goods and services, and for whom the goods and services should be produced. Economic Systems What are the major differences between a pure capitalist system and a pure command system?
Is the United States closer to a pure capitalist system or to a pure command system? Laws about resource ownership and the extent to which the government attempts to coordinate economic activity vary among economic systems from the most free the capitalist system to the most regimented command system.
A pure capitalist system is characterized by private ownership of all resources and coordination of all economic activity based on prices generated in free markets. A pure command economy is characterized as government control of both resources and production. The United States represents a mixed system with government accounting for about one third of all economic activity.
In addition, government regulates the private economy in a number of ways e. Was this bumper crop of students caused by a greater expected return on a college education or by a change in the opportunity cost of attending college? During the Vietnam War period, the armed forces were populated with male draftees. A male college student, however, received a deferment for the period during which he was a full-time student. Therefore, the opportunity cost of entering college, at least for the vast majority of young males, no longer included the civilian salary that one could have earned.
For females, on the other hand, the opportunity cost may well have increased because of the labor shortage created by the draft and the increase in college attendance among males. Sunk Cost and Choices Suppose you go to a restaurant and buy an expensive meal. Halfway through, despite feeling full, you decide to clean your plate. After all, you think, you paid for the meal, so you are going to eat all of it. This question highlights the importance of ignoring sunk costs in marginal decision making.
Once you have purchased the meal, you cannot get your money back whether or not you finish the meal. There is no benefit to overeating. The opportunity cost is the total cost of going to Florida and includes dollar costs incurred as well as the forgone opportunity of working. Comparative and Absolute Advantage You have the following information concerning the production of wheat and cloth in the United States and the United Kingdom:.
What is the opportunity cost of producing a unit of wheat in the United Kingdom? In the United States? Which country has an absolute advantage in producing wheat? In producing cloth? Which country has a comparative advantage in producing wheat? Which country should specialize in producing wheat? The United States has an absolute advantage in both goods; it is able to produce both products in less time than the United Kingdom requires. The United States has a comparative advantage in wheat because it has the lowest opportunity cost of producing one fifth cloth versus one third cloth for the United Kingdom , while the United Kingdom has the comparative advantage in cloth.
The opportunity cost of cloth in the United States is 5 wheat. The opportunity cost of cloth in the United Kingdom is 3 wheat. The United States should specialize in wheat, and the United Kingdom should specialize in cloth. The country with the lower opportunity cost of producing a good should specialize in producing that output.
Specialization Provide some examples of specialized markets or retail outlets. What makes the Web so conducive to specialization? One specialized market is that for military weapons. The stock exchange provides a specialized market for buying and selling company shares, and there are specialized markets for selling government bonds and foreign currencies. Media such as the Web allow firms in specialized markets to advertise their products at relatively low cost, and also permit customers to conduct interactive online searches for relatively specialized goods and services.
Graph the PPF, assuming that it has no curved segments. What is the cost of producing an additional car when 50 cars are being produced?
What is the cost of producing an additional car when cars are being produced? What is the cost of producing an additional washing machine when 50 cars are being produced? When cars are being produced? What do your answers tell you about opportunity costs? The cost of a car when 50 cars are produced is 4 washing machines.
The cost of a car when cars are produced is 6 washing machines. In the segment AB of this PPF, as you move from to cars, you must forgo washing machines. The th car costs you 6 washing machines. In the segment BC, as you move from to 1, washing machines, you must forgo cars. Note: The PPF would indicate that when 50 cars are produced, washing machines can be produced. The cost of an additional washing machine when cars are produced is one sixth of a car. In the segment AB, as you move from 0 to washing machines, you must forego cars.
Note: The PPF indicates that when cars are produced, only washing machines are produced. Also note that the answers to this question are the inverse of the answers to questions b and c. As you increase the production level of either good, its opportunity cost per unit eventually increases. When you go from 50 cars produced to cars produced, the cost in terms of washing machines forgone rises from 4 washing machines to 6 washing machines. Production Possibilities Suppose an economy uses two resources labor and capital to produce two goods wheat and cloth.
Capital is relatively more useful in producing cloth, and labor is relatively more useful in producing wheat. If the supply of capital falls by 10 percent and the supply of labor increases by 10 percent, how will the PPF for wheat and cloth change? The PPF will shift inward along the axis measuring cloth production and outward along the axis measuring wheat production. This is represented by a shift from CD to AB on the following graph:. Imagine your own PPF.
Right now— today—you have certain resources—your time, your skills, perhaps some capital. And you can produce various outputs. Suppose you can produce combinations of two outputs, call them studying and partying. Draw your PPF for studying and partying. Be sure to label the axes of the diagram appropriately.
Label the points where the PPF intersects the axes, as well as several other points along the frontier. Explain what it would mean for you to move upward and to the left along your personal PPF. What kinds of adjustments would you have to make in your life to make such a movement along the frontier?
Under what circumstances would your personal PPF shift outward? Why, or why not? You would be giving up some partying to engage in more studying. You would have to focus your schedule so that you would frequent places where there were inducements to study rather than to party. The PPF drawn assumes that you have a fixed amount of time skills as well as some capital. However, your study skills could be enhanced by training or by acquiring a new computer.
This increase in skills and capital in the production of studying would shift the PPF outward along the vertical axis, indicating that with the same time constraint, you are able to accomplish more studying. A parallel shift in the PPF could occur if that new computer also allowed you greater satisfaction partying on the internet.
In this imagined example, the computer, the capital good, would enable you to do more of both in the same time. An increase in average length of annual vacations b. An increase in immigration c. Advanced embedding details, examples, and help! Collection inlibrary ; printdisabled ; internetarchivebooks ; americana Digitizing sponsor Internet Archive Contributor Internet Archive Language English.
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