Econ 222 Macroeconomics Fall 2010 1) How would unem lo!

ment "e show on the ##F$ %1 oint)

Homework 1 Dr. Jennifer Smith

2) &hich of the followin' statements are e(am les of ositi)e economic anal!sis$ &hich are e(am les of normati)e anal!sis$ a) *he inheritance ta( should "e re ealed "ecause it is unfair. %1 oint) ") #resident +linton ro osed allowin' +hile to ,oin the -orth .merican Free *rade .'reement %-.F*.) in 1//0. %-.F*. is an a'reement si'ned "! the 1nited States2 Me(ico2 and +anada in which the countries a'reed to esta"lish all -orth .merica as a free3trade 4one.) .dmission of +hile should not "e allowed "ecause +hile5s en)ironmental standards are not u to those in the 1nited States2 which would 'i)e +hilean firms a cost ad)anta'e in com etin' with 1.S. firms. %1 oint) c) .llowin' +hile to ,oin -.F*. would cause wine rices in the 1nited States to dro . %1 oint) d) *he first riorities of the new re'ime in the Democratic 6e u"lic of +on'o %D6+2 formerl! 7aire) should "e to re"uild schools and hi'hwa!s and to ro)ide "asic health care. %1 oint) 8) 9n most olitical cam ai'ns2 candidates romise more than the! can deli)er. 9n the 1nited States2 "oth Democrats and 6e u"licans romise "etter health care2 a "etter en)ironment2 onl! minor reductions in defense2 "etter education2 and an im ro)ed s!stem of roads2 "rid'es2 sewer s!stems2 water s!stems and so on. &hat economic conce t do candidates i'nore$ :) . nation with fi(ed ;uantities of resources is a"le to roduce an! of the followin' com"inations of "read and o)ens<
Loaves of Bread (millions) 75 60 45 30 15 0 Ovens (Thousands) 0 12 22 30 36 40

*hese fi'ures assume that a certain num"er of re)iousl! roduced o)ens are a)aila"le in the current eriod for "akin' "read. a) 1sin' the data in the ta"le2 'ra h the ##F %with o)ens on the )ertical a(is.) %1 oint) ") Does the rinci le of =increasin' o ortunit! cost> hold in this nation$ E( lain "riefl!. %Hint< &hat ha ens to the o ortunit! cost of "read measured in num"er of o)ens as "read roduction increases$) %2 oints) c) 9f this countr! chooses to roduce "oth o)ens and "read2 what will ha en to the ##F o)er time$ &h!$ %2 oints) -ow su ose that a new technolo'! is disco)ered that allows twice as man! loa)es of "read to "e "aked in each e(istin' o)en. d) 9llustrate %on !our ori'inal 'ra h) the effect of this new technolo'! on the roduction ossi"ilities frontier. %1 oint) e) Su ose that "efore the new technolo'! is introduced2 the nation roduces 22 o)ens. .fter the new technolo'! is introduced2 the nation roduces 80 o)ens. &hat is the effect

Econ 222 Macroeconomics Fall 2010

Homework 1 Dr. Jennifer Smith

of the new technolo'! on the roduction of "read$ %?i)e the num"er of loa)es "efore and after the chan'e.) %1 oint) @) Determine whether each of the followin' statements is true2 false2 or uncertain. E( lain !our answers< a) A ortunit! cost is an o",ecti)e measure of cost. %1 oint) ") &hen makin' choices2 eo le carefull! 'ather all a)aila"le information a"out the costs and "enefits of alternati)e choices. %1 oint) B) Su ose a roduction ossi"ilities frontier includes the followin' com"inations<
Cars 0 100 200 Washin !a"hines 1#000 600 0

a) ?ra h the ##F2 assumin' that it has no cur)ed se'ments. %1 oint) ") &hat is the cost of roducin' an additional car when @0 cars are "ein' roduced$ %1 oint) c) &hat is the cost of roducin' an additional car when 1@0 cars are "ein' roduced$ %1 oint) d) &hat is the cost of roducin' an additional washin' machine when @0 cars are "ein' roduced$ &hen 1@0 cars are "ein' roduced$ %2 oints) e) &hat do !our answers tell !ou a"out o ortunit! costs$ %1 oint) C) *he to officials in the federal 'o)ernment and hi'h3rankin' officers of lar'e cor orations often ha)e chauffeurs to dri)e them around the cit! or from meetin' to meetin'. 9s this sim l! one of the er;uisites of their osition2 or is the use of chauffeurs ,ustifia"le on the "asis of com arati)e ad)anta'e$ %1 oint) 0) &hat would a strai'ht3line roduction ossi"ilities frontier "etween coconuts and fish on +astawa! 9sland sa! a"out o ortunit! costs$ %1 oint) /) . demand cur)e is drawn holdin' =other thin's constant.> &hat does the =other thin's constant> ro)iso mean2 and wh! is it im ortant to a correct inter retation of the law of demand$ %2 oints) 10) 9n man! amusement arks2 !ou a! an admission fee to the ark "ut !ou do not need to a! for indi)idual rides. How do eo le choose which rides to 'o on$ %2 oints)