Problem Set 1

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YOUR NAME:_______________________________
YOUR TAs NAME:___________________________ YOUR DISCUSSION #_____________ THE GEORGE WASHINGTON UNIVERSITY
Department of Economics
Economics 011
Section 14

Prof. Steve Suranovic
Fall 2012
Problem Set #2 – Answers

Answer all of the following questions from the book and those below. HW #2 is due in class on Wednesday Feb 22nd .
A. Questions from Text and Readings
R&T Chapter 2-5 (online), Chapter 2.4 Review and Practice (in printed textbook); Concept Problems 2, 3;
(for Extra Practice complete Numerical Problems 1 – 5 (not required for HW1)) CP2. Why does the downward-sloping production possibilities curve imply that factors of production are scarce?

CP2. A downward-sloping production possibilities curve shows that in order to obtain more of one good (or service), another must be forgone. That is the meaning of scarcity—the situation where we are forced to choose among alternatives.

CP3 In what ways are the bowed-out shape of the production possibilities curve and the law of increasing opportunity cost related?

Answers to Extra Practice Numerical Problems
Numerical Problems
1.
a. The production possibilities curve is a straight line from a point at twenty trees per day on the vertical axis to four lawns per day on the horizontal axis. b. Nathan must forgo 1/5 of a lawn mowed for each tree he plants. c. Mowing a lawn requires that Nathan give up planting 5 trees.

Trees planted per day

Figure 2-1a

20

4

Lawns mowed per day

2.
a. The production possibilities curve is a straight line drawn from four trees planted per day on the vertical axis to four lawns mowed per day on the horizontal axis. b. The opportunity cost of planting a tree is mowing one lawn per day. c. The opportunity cost of mowing one lawn is planting one tree.

Trees planted per day

Figure 2-2a

4

4

Lawns mowed per day

3. Nathan's opportunity cost of planting one tree per day is 1/5 of a lawn mowed,...
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