Foundation of Economics, Semester 1, 2021Week 4, Tutorial 2Consider a simple economy producing two goods: cars and milk. The following table givesseveral points on this economy's production possibility frontier.1.Cars (000s)Milk (000s)60150230a. Graph this economy's production possibility frontier.b. Why is the production possibility frontier downward sloping? Why is the productionpossibility frontier concave? Be sure to explain economic intuition behind that fact.c. Suppose the economy is currently producing 2000 cars and 30,000 gallons of milk.What is the opportunity cost of producing additional 20,000 gallons of milk?d. The synthetic production of Bovine Growth Hormone (BGH) allows dairy farmers toget twice as much milk from each cow. In terms of this production possibilityfrontier, this means that this economy can now produce twice as much milk at eachlevel of car output. With the economy currently producing 2000 cars, Jerry claimsthat the development of BGH allows the economy to produce more milk and morecars. Do you agree? Explain carefully, using an appropriate diagram to illustrate youranswer.2. The table below summarizes the number of hours it takes to manufacture cars and dinghy inGermany and PNG.No. of hours to make one carNo. of hours to build a dinghyGermany3020Papua New Guinea6030Which country has an absolute advantage at making cars? Which country has anabsolute advantage at making dinghy?b. Estimate the opportunity cost of making car and dinghy in each set of countries.a.Which country has a comparative advantage for manufacturing cars? Which set ofcountry has a comparative advantage for manufacturing low quality cars?с.3. In Australia one unit of labour can produce 25 computers or 25 bushels of wheat. In Taiwanone unit of labour can make 30 computers or 50 bushels of wheat. Assume that computersand wheat are the only two goods in the world.a. What is Australia's opportunity cost of making a computer? What is Taiwan'sopportunity cost of making a computer?b. What is Australia's opportunity cost of producing a bushel of wheat? What isTaiwan's opportunity cost of producing a bushel of wheat?Does Australia have absolute advantage in producing anything? Explain.с.d. Does Australia have comparative advantage in producing anything? Explain.Prepared by Dek Sum, 2021Does Taiwan have comparative advantage in producing anything? Explain.Is it possible for Australia to gain by trading with Taiwan? Explain.g. Is it possible for Taiwan to gain by trading with Australia? Explain.е.f.h. What are the limiting terms of trade, outside of which exchange between Australiaand Taiwan will not occur? (These will be barter ratios, e.g. 2 computers/bushel ofwheat.)

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1. Consider a simple economy producing two goods: cars and milk. The following table gives several points on this economy's production possibility frontier. Cars (000s) Milk (000s) 60 1 50 2 30 3 a. Graph this economy's production possibility frontier. b. Why is the production possibility frontier downward sloping? Why is the production possibility frontier concave? Be sure to explain economic intuition behind that fact. c. Suppose the economy is currently producing 2000 cars and 30,000 gallons of milk. What is the opportunity cost of producing additional 20,000 gallons of milk?

1. Consider a simple economy producing two goods: cars and milk. The following table gives several points on this economy's production possibility frontier. Cars (000s) Milk (000s) 60 1 50 2 30 3 a. Graph this economy's production possibility frontier. b. Why is the production possibility frontier downward sloping? Why is the production possibility frontier concave? Be sure to explain economic intuition behind that fact. c. Suppose the economy is currently producing 2000 cars and 30,000 gallons of milk. What is the opportunity cost of producing additional 20,000 gallons of milk?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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