(PPC), which would be its PPC if there were a major technological breakthrough in the consumer goods industry and the new technology was widely

Transcription

1 Production Possibilities Curves: Scarcity, Trade-offs and Opportunity Costs 1. Below is a production possibilities curve for tractors and suits a. If BB' represents a country's current production possibilities curve of clothing. (PPC), which would be its PPC if there were a major technological breakthrough in the consumer goods industry and the new technology was widely Y adopted? (Use two letters to indicate the curve.) Tractors X A B b. If BB' represents a country's current PPC, which would be its PPC if a new government were to come into power which forbids the use of automated machinery and production techniques in all industries? Suits of Clothing a. If the economy moves from point A to point B, it will b. produce (more/fewer) a. tractors and (more/ fewer) b. suits of clothing. c. If the economy is producing at point X, some of the d. resources of the economy are either (fully/not fully employed) c. or (efficiently/inefficiently employed) d.. e. If the economy moves from point X topoint B, f. (more/ fewer) e. tractors and (more/fewer) f. suits will be produced. g. If the economy is to produce at point Y,it h. must either (add resources/increase production of tractors) g. or (improve technology/increase production of suits of clothing) h.. i. All the combinations of products shown in j. the production possibilities curve (PPC) can be achieved only if there are full production and full employment in the economy; the best combination of products depends upon the (values/resources/ technology) i. of that society and is a (scientific/ nonscientific) j. matter. 2. Note the following production possibilities curve and use it to answer each of the questions below. Capital Goods C B A X Y A' B' C' D' Consumer Goods c. If BB' represents a country's current PPC, which would be its PPC if massive new sources of oil and coal were found within the economy and if there were technological breakthroughs in both sectors of the economy? d. If new resources were found and new technology created what point above would become more attainable? e. If a country is not fully and efficiently utilizing its resources, it would be producing at a point such as? Using the diagrams below, illustrate the impact on the economy's production possibilities of each of the following scenarios. 3. An atomic bomb hits the continental United States and half of the labor force is wiped out. 4. Research in computer-aided design (CAD) results in technological improvements that increase the efficiency of existing machines and equipment of all types. 5. SDI research results in a new raw material for producing weapons. Unfortunately, the material cannot be used for butter production. 6. The economy goes into a recession, resulting in an unemployment rate of 10%. 7. Political refugees from former Croatia enter the U.S. with specialized skills related to the dairy industry. Use the diagram below to answer questions that follow. Guns Guns Butter Butter Guns 5. Butter

2 Guns 6. Guns If this economy is currently producing 12 units of Good B and 0 units of Good A: Butter Butter a. The opportunity cost of increasing production of Good A from 0 to 1 units is the loss of unit(s) of Good B. b. The opportunity cost of increasing production of Good A from 1 Use the diagram below to answer the questions that follow: unit to 2 units is the loss of unit(s) of Good B. Good B 12 c. The opportunity cost of increasing production of Good A from 2 units to 3 units is the loss of unit(s) of Good B. 10 d. This is an example of (constant, increasing, decreasing, zero) opportunity cost of 8 Good A A production possibilities table for two commodities, wheat and 4 automobiles, is found below. The table is constructed employing the usual assumptions. Wheat is measured in units of100,000 2 bushels and automobiles in units of 100, Good A 8. If this economy is currently producing 12 units of Good B and 0 units of Good A: a. The opportunity cost of increasing production of Good A from 0 to 1 units is the loss of unit(s) of Good B. b. The opportunity cost of increasing production of Good A from 1 unit to 2 units is the loss of unit(s) of Good B. c. The opportunity cost of increasing production of Good A from 2 units to 3 units is the loss of unit(s) of Good B. d. This is an example of (constant, increasing, decreasing, zero) opportunity cost of Good A. Use the diagram below to answer questions that follow. Good B Combinatio n A B C D E F G H Wheat Automobiles Fill in the table below showing the opportunity cost per unit of producing the 1st through the 7th automobile. Automobiles Cost of Production 1st 2nd 3rd 4thj 5th 6th 7th Good A

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9 Market Event Would the demand curve or supply curve shift? Would the curve shift to the right or left? wheat A drought destroys much of the crop. Supply Left redwood lumber Environmentalists urge consumers to boycott redwood products. cigars A new study shows that smoking cigars results in lots of wrinkles. butter The price of margarine goes up. paper The price of wood pulp rises. Hula hoops Brad Pitt confides to People magazine that "he gets a big kick out of his hula hoop." yachts The average price of stocks falls by over 20% between now and the end of the year. gasoline Large sports-utility vehicles (like Suburbans and Expeditions) become more popular. umbrellas Heavy rain is forecast. tofu E. Coli bacteria is found in another meat plant. gasoline Two oil supertankers collide. hamburger The price of hamburger rises. oranges There's an early frost which destroys much of the crop. apples A new pesticide is developed which controls tent caterpillars. grapes The National Marines Fisheries Service bans pesticide spraying within 1,000 feet of waterways containing coho salmon. wine The average wage of grape harvesters rises by 10%. U.S. cars The U.S. imposes a tariff on Japanese car imports. hospital Scientists discover a pill that cures cancer. beds cement A 7.9 earthquake hits San Francisco. Video The price of getting cable TV goes up. rentals windshields A new law is passed requiring gravel trucks to cover their loads with tarps. Taxi Local subway workers go on strike service Bike The price of bicycles goes down helmets melons The cost of water goes up.

10 Lucerne milk jellybeans Oreo cookies Burger King whoppers Hot dogs Hot dog buns butter candles Cowboy boots The price of Safeway milk goes down. The price of jellybeans goes up. The price of milk increases. McDonald's lowers the price of Big Macs. 60 Minutes does an expose called "The Truth about Hot Dogs." The price of flour rises Mad Cow Disease wipes out a lot of dairy cows. An electric company official announces that a computer bug will likely result in power outages. Old Navy launches an ad campaign called "Everyone in cowboy boots."

11 For each of the following, draw and supply and demand graph (correctly labeled) for the market indicated (the first sentence in the example identifies the market). Locate a starting equilibrium point for price and quantity. Identify which curve is going to shift and why using your determinants of supply and demand. Show on your graph how the appropriate curve shifts and label the new equilibrium points. 1. In the market for wheat. A drought destroys much of the wheat crop in Kansas and Nebraska 2. In the market for Redwood Lumber. Environmentalists urge consumers to boycott redwood products. 3. In the market for cigars. A new study shows that smoking cigars results in lots of wrinkles 4. In the market for butter. The price of margarine goes up 5. In the market for paper. The price of wood pulp increases. (Wood pulp is used to make paper.) 6. In the market for Hula Hoops. Brad Pitt confides to People Magazine that he gets a big kick out of his Hula Hoop. 7. In the market for Yachts. The average price of stocks falls by over 20% between now and the end of the year. 8. In the market for gasoline. Large SUV s like Suburbans and Expeditions become more popular 9. In the market for umbrellas. Heavy rain is forecast. 10. In the market for gasoline. Two super-tankers collide. 11. In the market of oranges. There is an early frost which destroys much of the crop in Florida. 12. In the market for apples. A new pesticide is developed which controls tent caterpillars. (a threat to apples) 13. In the market for wine. The average grape harvesters rises by 10%. 14. In the market for U.S. cars. The U.S. imposes a tariff on Japanese car imports. 15. In the market for hospital beds. Scientists discover a pill that cures cancer.

12 16. In the market for cement. A 7.9 earthquake hits San Francisco. (Severe earthquake) 17. In the market for video rentals. The price of getting cable T.V. goes up. 18. In the market for windshields. A new law is passed requiring gravel trucks to cover their loads with tarps. 19. In the market for taxi service. Local subway workers go on strike. 20. In the market for bicycles helmets. The price of bicycles goes down. 21. In the market for melons. The cost of water goes up. 22. In the market for Oreo cookies. The price of milk increases. 23. In the market for Burger King Whoopers. McDonalds lowers the price of Big Mac s. 24. In the market for hot dogs. 60 Minutes does an expose called The truth about hot dogs. 25. In the market for hot dog rolls. The price of flour rise. 26. In the market for butter. Mad Cow Disease wipes out a lot of dairy cows. 27. In the market for candles. An electric company official announces that a computer bug will likely result in power outages. 28. In the market for cowboy boots. Old Navy launches an advertising campaign called Everyone in Cowboy Boots.

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17 Unit 2 Measuring the Performance of the Economy Gross Domestic Product (GDP) "Gross domestic product is the total market value of all final goods and services produced within the borders of a country in one year." Final goods and services are newly produced goods that have reached their final consumer; that is, they will not be resold to anyone else.

18 Unit 2 Measuring the Performance of the Economy Final versus Intermediate Goods Final Goods and Services Manicures Bread Cruise missile New factory Dresses Increase in automobile inventory Intermediate Goods Window glass in new automobiles Lumber in a new house Screws used in a cruise missile Flour for making bread Cloth for making dresses The first list provides examples of goods and services that have reached their final buyer during the year. Answer the following questions. 1. Who buys haircuts, bread, and dresses? 2. Who buys cruise missiles? 3. Who buys a new factory or builds up an inventory of unsold products, such as automobiles? Answer the following questions based on the second list 4. What does the word "intermediate" mean? 5. Why might window glass used in producing automobiles be called an "intermediate" good? 6. Explain why the other products are intermediate goods. GDP consists of four parts - consumer goods and services, government purchases of goods and services, investment goods, and exports and imports. C = family (household) spending on consumer goods and services G = government purchases of goods and services I = spending by firms and households on new capital such as factories, tools, inventory increases or decreases, and new houses NX = exports are added to GDP and imports are subtracted.

19 Unit 2 Measuring the Performance of the Economy Determine the GDP component (C, G, or I) for each box. Compact Discs 8,000 dollars Family Minivan 50,000 dollars Bread 5,000 dollars Factory 24,000 dollars Manicures 2,000 dollars Concerts 1,000 dollars Cruise Missile 10,000 dollars New Roads 10,000 dollars Increase in toy inventory 1,000 dollars Butter 1,000 dollars Books 5,000 dollars Visits to Doctor's Office 20,000 dollars Candy Bars 5,000 dollars Apples 3,000 dollars Police Protection 5,000 dollars Calculate GDP and then calculate each component's percentage share of total GDP. C = $ I = $ G = $ GDP = $

20 Unit 2 Measuring the Performance of the Economy Determine the GDP component (C, G, or I) for each box. Compact Discs 2,500 dollars Bread 2,000 dollars Manicures 3,000 dollars Concerts 1,000 dollars Visits to Doctor's Office 17,000 dollars Candy Bars 10,000 dollars Butter 2,000 dollars New Roads 7,500 dollars Cruise missile 5,000 dollars Police Protection 5,000 dollars Education 5,000 dollars National Parks 2,500 dollars State Courts 5,000 dollars Construction Equipment 7,000 dollars Increase in toy inventory 500 dollars Calculate GDP and then calculate each component's percentage share of total GDP. C = $ I = $ G = $ GDP = $

21 Unit 2 Measuring the Performance of the Economy Listed below are all items consumed in the country of Pasadena and the total spending on each item. In the space next to each item, classify the item as consumer goods and services (C), government purchases of goods and services (G), or investment goods (I). GDP ITEM MARKET VALUE public library expansion 2,500 dollars canned fruits and vegetables 19,300 dollars frozen meats and fish 15,700 dollars dresses and suits 23,600 dollars park maintenance 8,200 dollars video rentals 5,200 dollars laundry services 4,100 dollars new fruit and vegetable warehouses 8,900 dollars new meat and fish freezing machines 3,200 dollars new roads and bridges and schools 12,100 dollars books 9,600 dollars construction equipment 2,400 dollars police and fire protection 2,500 dollars new housing 1,800 dollars furniture 1,900 dollars Calculate GDP and then calculate each component's percentage share of total GDP. C = $ I = $ G = $ GDP = $

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