Economics – Dr.

Katie Sauer
In Class Assignment 2: ch 2,ch 3

1. The production possibilities frontier is a

a. graph which shows the frontier beyond which agriculture is unprofitable.
b. graph which shows areas of the world in which capitalist production is now possible.
c. graph which shows the various combinations of resources that can be used to produce a given
level of output.
d. graph that shows the various combinations of output the economy can possibly produce given
the available resources and technology.

2. According to the graph above, an efficient combination of bathtubs and barrels would be
a. 30 barrels and 6 bathtubs.
b. 20 barrels and 8 bathtubs.
c. 25 barrels and 12 bathtubs.
d. 15 barrels and 12 bathtubs.

3. Suppose a gardener produces both green beans and corn in her garden. If she must give up 13
bushels of corn to get 5 bushels of green beans, then the opportunity cost of 1 bushel of green
beans is
a. 0.38 bushel of corn.
b. 2.6 bushels of corn.
c. 0.38 bushels of green beans.
d. 2.6 bushels of green beans.

4. Suppose that in Canada each worker can produce either 2 cars or 50 bushels of wheat per week.
Suppose each US worker can produce either 4 cars or 50 bushels of wheat per week.

a. Which country has absolute advantage in which good?

b. What is the opportunity cost of producing one car in Canada?

c. What is the opportunity cost of producing one car in the US?

d. Which country has comparative advantage in which good?

e. Which country should specialize in the production of wheat? Why?

f. What will be the range of prices for one car?

g. What will be the range of prices for one bushel of wheat?

h. If the negotiated trade price is 14 bushels of wheat for 1 car, graph the PPF
and CPF for each country (put each country on a separate graph).

i. Explain how through specialization and trade, both countries can be made better off.