Jorge Rodriguez

Period 5

AP Economics Problem set #1

A) Scarcity is the limited availability of resources. Scarcity confines ones choices and trade- offs by
limiting the amount of resources available, the cost of the limited resource defines your choice.
B) i. Trade off is what one gives for receiving, such as giving a dollar for one pizza. Opportunity cost
is what one could have had such as the money one person could have had for missing one work
day. Trade off is what one gives and opportunity cost is what one could have had.
ii. Price is what the consumer pays for a product while cost is what is payed to produce the
product. For instance the price of a pencil is 50 cents to the consumer while the cost of the
pencil is 15 cents.
iii. Normative economics is based on opinion while positive economics is based on facts.
Normative economics would be, “the gas prices are very high.” Positive Economics would be,
“People will buy less gasoline is prices go up”.
iv. Consumer goods are goods directed towards consumer consumption while capital goods are
goods used by businesses to increase production. A consumer good would be a pencil; it is used
by the consumer. A capital good would be a dishwasher since a restaurant owner might use a
dishwasher to make his restaurant more efficient.
v. Allocative efficiency the production of products most desired by society and Productive
efficiency are products being produce in the most efficient manner. Allocative efficiency would
be producing mostly size nine shoes since that is the most common foot size. Productive
efficiency is the production of a product with as many resources as possible. An example would
be producing 50 waffles and 50 pancakes because you are producing the max amount of waffles
and pancakes.
vi. Resource market is a market used to exchange resources for labor, capital and natural
resources. The product market is a market used to exchange final products. An example of a
resource market would be Mexico selling oil to the U.S. while a product market would be the
U.S. selling television sets.
vii. Free market is a market controlled by consumer while centrally planned economies are
markets controlled by government. In a Free market, such as the U.S. companies are privately
owned while in centrally planned economies they are government owned.
2
A) The consequences of Ford producing at combination A are not producing any Trucks. The
consequences of Ford producing at combination G are not producing any cars. Neither
combination is desirable because in both combination lack one of the other. There has to
be a production of both cars and trucks. Not everyone will only want to buy trucks or cars.
 B) Point Y shows inefficiency, or poor use of resources which can lead to unemployment. Point
X illustrates an impossible production point. The resources available don’t allow for point X
to be obtained; there is a lack in resources.
C) The graph shows unemployment on point Y. Point Y is below the productions possibilities
curve signifying that resources are not being used efficiently. Opportunity costs are also
demonstrated by the graph. If one goes from point B to point C, the opportunity cost is
three cars. Efficiency is also shown in the graph by the points in the production possibilities
curve. All points in the production possibilities curve are using the resources efficiently.

A) On PPF-A, the opportunity cost of going form point a to b in terms of guns is 5 guns. From b to
c the opportunity cost will also be 5 guns. It can be generalized that the opportunity cost from
one point to another will continue to be 5 guns since the graph stays constant.
B) On PPF-B, the opportunity cost of going form point a to b in terms of guns is ½ of gun. The Per
Unit cost of moving from c to e is 1 butter for 4 guns.
C) PPF-B shows increasing opportunity costs because the graph is not constant like PPF-A. In PPF-A
the opportunity cost for Guns will always be five between any two adjacent points. In PPF-B,
the opportunity cost of Guns is variable depending on the points since the graph is not constant.
Form point a to b the opportunity cost of Guns is ½ while the opportunity cost of Guns from
point d to e is 5. The opportunity cost is variable.
D) There are three situations that would shift PPF-B outward. One, if there was a change in
technology. Advancement in technology would make processes for efficient therefore
increasing production of but products. Two, and increase in labor force would allow for a
greater amount of production, shifting PPF-B outward. Third would be a change in resources.
As resources become more available the production of products will become less costly and
more efficient.
5

A) Puerto Rico has the absolute advantage in bananas and Jamaica has the absolute advantage in
sugarcane. I arrived to the answer by comparing both countries and seeing which of them had the max
production capabilities in both categories.

B) Jamaica’s opportunity cost for producing one unit of bananas is ½ of sugarcane and Puerto Rico’s
opportunity cost for producing one unit of sugarcane is 4 bananas.

C) Puerto Rico has the comparative advantage in bananas and Jamaica has the comparative advantage
in sugarcane. I arrived to the answer by comparing the cost of producing one unit of bananas and
sugarcane and choosing the one with the least cost.

D) These countries should trade because one country can produce one product more efficiently than
the other. Puerto Rico should specialize in bananas and Jamaica should specialize in sugarcane.