PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 2, Problem 5P
(a)
To determine
Show the shift in
(b)
To determine
The attainable points in Figure 1.
(c)
To determine
The meaning of the given statement.
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Once again, consider Babs and Donna, who can each produce cake, beer, or some combination of
the two using only 40 hours of labor each. Babs can produce a maximum of 50 cakes if she
produces no beer, and 100 units of beer if she produces no cake. Donna can produce a maximum
of 100 cakes with no beer produced; if she makes no cake, she can produce 120 units of beer.
In autarky, each producer spent half of her time producing cake and the other half producing
beer. But now let's say that Babs and Donna decide to trade with each other. They decide that
each producer will fully specialize in the good where she has comparative advantage. Later, they
will work out the details on how much beer will trade for how many cakes and vice versa.
Calculate the gains in trade in cakes that Babs and Donna together (as a group) will experience
due to trading. In other words, tell me how many more cakes the two of them can now consume
(together) by trading instead of remaining in autarky.
(Carefully…
Once again, consider Babs and Donna, who can each produce cake, beer, or some combination of
the two using only 40 hours of labor each. Babs can produce a maximum of 50 cakes if she
produces no beer, and 100 units of beer if she produces no cake. Donna can produce a maximum
of 100 cakes with no beer produced; if she makes no cake, she can produce 120 units of beer.
If in autarky each producer spends half of her time producing cake and the other half producing
units of cake.
beer, then in autarky Babs would produce
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The productive capability of an economy is such that to produce 5 units of military good it takes 2 workers to be employed while 10 units of consumer goods require 3 workers. Resources are limited in such a way that only 75 units of military good can be produced when all resources are employed.
a) Construct the production possibility schedule and curve for this economy.
b) Graphically represent what would happen if 12 additional workers were added to the economy.
c) Graphically represent what would happen if the productivity of the workers were reduced to 2 units of military good and 5 units of consumer goods.
d) Graphically represent what would happen if productivity for military goods remained the same but it now required 2 workers to produce 10 units of consumer goods
Chapter 2 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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