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7d) (d). (a). D (a). E (e). F (c). G (c). H % Kb). J (c). K(c). L(e).

leral questions:

(a). As production offish is increased from 0 to 1, 1 jnut is sacrificed; from 1 to 2, 2 coconuts; from 2 to coconuts; and from 3 to 4, 4 coconuts. 2 (e). alike the reduction in unemployment, the other Sternatives involve an increase in resources or tech-Slogical change, which will shift the frontier. 3 (b). A leave production possibilities frontier indicates that rces tend to be specialized in certain uses, so that sing production of one particular good involves sing resort to inputs best suited to producing the cr. Hence opportunity cost will tend to increase. 4 linear production possibilit) frontier indicates t a constant amount of one good must be sacrificed prder to obtain additional units of another good. }ce, opportunity costs are constant. 5 (b). He gives he income from working plus the price of admis-and food, $37. 6 (a). A downward sloping pro-cdon possibility frontier indicates that, with all purees fully employed, increasing production of any I involves the transfer of resources away from some ler good. Hence it expresses the fact that resources :, scarce. 7 (c). Only the increase in the labor force fts the frontier. 8 (a). Crusoes opportunit)- cost is F/2h) - (lQ/24h) = 12F/1Q i.e. 12 fish per quail, lays is (IF/lh)- (lQ/6h) = (6F/1Q) i.e. 6 fish per J. The terms of trade must settie between the >portunity costs. 9 (d). See text. 10 (e). A countrys . of physical capital is built up over many years, so : the failure in any one year to invest in that year is Uy consistent with a continued high national income lat yean 11 (d). Idle peanut machinery does not : alternative uses. 12 (c). It can have more of both. \ (a). (300 w)/(600 c) = (1/2 w)/(lc). 14 (e). (400 v)/(1200 c) and (1200 c)/(400w).15 (e). Kansas has I comparative adrantage in wheat because of its lower Ippportunity cost (2 corn per wheal v. 3 corn for (Nebraska). Kansas should specialize in wheat and "Nebraska in corn. 16 (c). Only 25 tons of corn for 10 wheat (2.5 c/lw) gives a terms of trade lying between I the opportunity costs in Kansas and Nebraska, leaving both better off 17 (d). 8 corn for 4 wheat is precisely thc Kansas opportunity cost, so Kansas would be no Jtter off All others lie between the two opportunit) 18 (e). His opportunity cost is $11,000. The

$15,000 job is irrelevant because it is not the highest paying. Joe gives up $16,000 less what his parents gave him and his summer earnings. The subsidy provides an incentive to attend UCSB by reducing opportunit) costs. By the way, a few books define the term differ-endy, but in this book all costs arc opportunity costs. 19 (c). Hair grows regardless of whether you attend UCSB. 20 (b). Here we are moving along the frontier, not in (de)creasing resources. 21 (d). If point (c) is on the frontier, then point (d) must lie outside it since (d) has the same butter and more guns. But (d) is feasible; therefore (c) cannot lie on the frontier. 22 (a) Choices (b) through (d) are all produced goods valuable only insofar as they can be used for making consumption goods; hence, capital by definition. 23 (e). The effects in (d) oppose each other. 24 (a). In Canada (ls/3h) (lc/4h) = (4/3s)/lc - in other words 4/3 shirts per chair. Reversing directions, this is the same trade-off as 3/4 chairs per shirt, the reciprocal. Do you see why Canada would specialize in shirts? 25 (c). Technological advance in any one line of production frees resources into other lines. 26 (d). Its the out-of-pocket cost plus the lost profit from giving up B. If this seems strange, youll see the reason for reckoning cost this way in Section V. 27 (e). Same reasoning as 26. 28 (e). See text. 29 (e). All are ways of allocating scarce goods. 30 (e). Without competition for places theres no need lo draw lots. 31 (c). Option (c) involves less guns and butter than (b). Thus if (c) is on the frontier.

(b) is not attainable. But (b)" is attainable; therefore

(c) cannot be on the frontier. 32 (d). With all resources employed making tanks, were bound lo have more tanks than before, but with all resources thrown into souffles, wed still have the same amount. 33 (e). The greater the opportunity cost of good X. 34 (a). If middlemen didnt facilitate trade, traders would "eliminate the middleman" and keep his fee for themselves. 35 (e). Al these prices, one gives up three cheese to have a unit of wine and 1/3 wine to have a unit of cheese. 36 (e). This is a movement from one point to another along a stationary curve. China will have more agricultural output and less science. 37 (a) With full employment, Nazi Germany presumablv operated on its frontier II produced more ofwhat it formerly imported and, since il was on die frontier, necessarily less of what it formerly exported. 38 (b). Fewer human resources means less of everything can be produced. 39 (b). The terms of trade must lie between the opportunity costs of Hawaii and the Philippines if both are to be better off. This means that the Philippines must receive more than 1 pineapple

for each 6 sugar and diat Hawaii must receive more than 3 sugar for each pineapple. Hence 1 pineapple must trade for between 6 sugar and 3 sugar. 40 (a). This trading rado is inferior to the trade-off along the Philippines producdon possibilides curve. It would end up inside its curve if it specializes in sugar under these circumstances. 41 (d). The trade-off is 5 TAs per 1 Professor, so the opportunity cost of a is the reciprocal, l/5di of a Professor 42 (b). See text. 43 (b). There will be a new horizontal intercept, hence a smaller slope. This means the opportunity cost of the horizontal axis good has fallen and the opportunity cost of the verdcal axis good, the reciprocal of the slope, has risen. 44 (a). The opportunity cost of a party is constant at one grade-point, which implies non-specialized resources. 45 (b). A concave producnon possibilides curve implies increasing opportunity cost as the student moves into one good and out of the othen In this case the graph of the producdon possibility curve is linear (a straight hne), so the opportunity cost is constant. 46 (b). The charge implies that the country could have more military goods without the sacrifice of anything else if the Joint Chiefs would combine and coordinate military resources more effecdvely. 47 (d). The loss of the human talents of these people will shift the producdon possibility curves inward. There are two possibilides. An extremely unlikely one is that the curves are linear (straight lines) before and after the expulsions and shift in a parallel fashion. In this case, the opportunity costs will not change, More likely, the

countries concave producdon possibility curves become flatter or steeper, i.e., the slopes will changel This means that the opportunity cost of one of the goods will increase and the opportunity cost of Uie other will decrease, since the two costs are the recipro.* cals of each other. Historically, the prices of goods prj duced by expelled groups rise following expulsions often impoverishing the majority who are supposed to benefit. The polidcal judgement diat the expel], minority are parasites on the majority is proven false the reality of the market. 48 (c). First of all, we sec Godzilla has a comparative advantage in locomotr wrecking since his opportunity cost is 2 cars per modve versus 3 for Rodan. Without specializadon thi could wreck 27 cars and 11 locomodves. By speci ing Rodan can wreck 30 cars and Godzilla 12 loco: dves. This question illustrates the gain in output uni specializadon. 49 (c). The fact that these coun chose to forego gainful trade does not mean that thi necessarily produced less than what they were cai of producing. By the way, such countries often attc to mimic the capital intensive products of the moi country with labor intensive resources best adapted producing something endrely different. The Egyptii steel mills are an example. Economist Mili( Friedman calls them modern-day pyramids becau of the enormous cost to the Egyptian economy of ing steel in a labor intensive economy poorly adapt to producing it..

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