Assignment 1
SFU Econ 105
Week 2 Summer 2013 Name:
Answer key
Date:
SFU ID:
Section:
1. Explain how three economic concepts are illustrated by the production possibility boundary.
Scarcity: The production possibilities boundary (PPB) separates attainable combinations of goods from those that are unattainable. Thus scarcity is shown by the existence of some unattainable bundles of goods.
Choice: Because of scarcity, societies must somehow choose how resources are to be allocated; thus a particular point on the PPB must be chosen.
Opportunity Cost: The slope of the PPB is negative, revealing the opportunity cost that is unavoidable every time a choice is made. For the economy as a whole, the decision to produce more of one good must involve a decision to produce less of some other good. 2. Consider an economy that produces only food and clothing. Its production possibility boundary is shown below.
1
SFU Econ 105
Week 2 Summer 2013 a. If the economy is at point A, how many tonnes of clothing and how many tonnes of food are being produced? At point B?
At point A, 2.5 tonnes of clothing and 3 tonnes of food are being produced per year.
At point B, annual production is 2.5 tonnes of clothing and 7 tonnes of food. b. What do we know about the use of resources when the economy is at
Week 2 Summer 2013 Name:
Answer key
Date:
SFU ID:
Section:
1. Explain how three economic concepts are illustrated by the production possibility boundary.
Scarcity: The production possibilities boundary (PPB) separates attainable combinations of goods from those that are unattainable. Thus scarcity is shown by the existence of some unattainable bundles of goods.
Choice: Because of scarcity, societies must somehow choose how resources are to be allocated; thus a particular point on the PPB must be chosen.
Opportunity Cost: The slope of the PPB is negative, revealing the opportunity cost that is unavoidable every time a choice is made. For the economy as a whole, the decision to produce more of one good must involve a decision to produce less of some other good. 2. Consider an economy that produces only food and clothing. Its production possibility boundary is shown below.
1
SFU Econ 105
Week 2 Summer 2013 a. If the economy is at point A, how many tonnes of clothing and how many tonnes of food are being produced? At point B?
At point A, 2.5 tonnes of clothing and 3 tonnes of food are being produced per year.
At point B, annual production is 2.5 tonnes of clothing and 7 tonnes of food. b. What do we know about the use of resources when the economy is at