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Econ 353 Homework 1
Due: 9/5 (Wednesday)
Name:____________________________
[1-9] In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two
tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each day can produce either 4 pounds
of spaghetti and no meatballs, or 20 pounds of meatballs and no spaghetti, or any combination in between.
The Frivoli, by themselves, each day can produce either 10 pounds of spaghetti and no meatballs, or 5
pounds of meatballs and no spaghetti, or any combination in between.
1. Assume that all production possibility frontiers are straight lines. Draw one diagram showing the daily
production possibility frontier for the Tivoli and another showing the daily production possibility
frontier for the Frivoli.
2. Which tribe has the absolute advantage in spaghetti production?
3. Which tribe has the absolute advantage in meatball production?
4. Find the opportunity cost for each product.
Tivoli Frivoli
Spaghetti
Meatballs
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5. Which tribe has the comparative advantage in spaghetti production?
6. Which tribe has the comparative advantage in meatball production?
7. Suggest a way that they can specialize in producing the good in which they have a comparative
advantage.
8. Find the gains from trade. Assume that they agreed to trade under this condition:
Without trade, the Tivoli produced and consumed 3 pounds of spaghetti and 5 pounds of meatballs, and
the Frivoli produced and consumed 4 pounds of spaghetti and 3 pounds of meatballs. Each tribe agreed
to specialize in the production of the good in which they have a comparative advantage and trade 4
pounds of spaghetti for 8 pounds of meatballs.
Tivoli Frivoli
Spaghetti Meatballs Spaghetti Meatballs
Without Trade
Production and Consumption
With trade
Production with specialization
Trade
Consumption
Gains from Trade
Increase in Consumption
9. Illustrate the consumption levels (before and after trade) of both tribes on the production possibilities
in question 1.
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[10-13] Refer to the information provided in Figure 2.1 below to answer the questions that follow.
Figure 2.1
10. According to Figure 2.1, the point where only motorcycles are produced is
A) A.
B) B.
C) C.
D) E.
11. According to Figure 2.1, which point cannot be produced with the current state of technology?
A) A
B) B
C) C
D) F
12. According to Figure 2.1, a decrease in unemployment may be represented by the movement from
A) B to A.
B) B to D.
C) C to D.
D) A to C.
13. According to Figure 2.1, as the economy moves from Point A to Point E, the opportunity cost of
motorcycles, measured in terms of hybrid cars,
A) decreases.
B) increases.
C) remains constant.
D) initially increases, then decreases.
[14-18] Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch
fist. The accompanying table shows the maximum annual output combinations of potatoes and fist that
can be produced. Obviously, given their limited resources and available technology, as they use more of
their resources for potato production, there are fewer resources available for catching fish,
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Maximum annual output options Quantity of potatoes (pounds) Quantity of fish (pounds)
A 1000 0
B 800 300
C 600 500
D 400 600
E 200 650
F 0 675
14. Draw a production possibility frontier with potatoes on the horizontal axis and fish on the vertical
axis illustrating these options, showing points A-F.
15. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain. Where would this
point lie relative to the production possibility frontier?
16. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?
17. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds?
18. The answers to questions 12 and 13 are not the same? What does this imply about the slope of the
production possibility frontier?
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[19-21] Refer to the information provided in Figure 2.3 below to answer the questions that follow.
Figure 2.3
19. Refer to Figure 2.3. Economic growth is represented by a
A) shift from ppf2 to ppf1.
B) shift from ppf1 to ppf2.
C) movement along ppf1.
D) movement along ppf2.
20. Refer to Figure 2.3. Which of the following will not cause the production possibility frontier to shift
from ppf1 to ppf2?
A) the discovery of previously unknown oil fields
B) an improvement in technology
C) an increase in the stock of capital
D) a decrease in the unemployment rate
21. Refer to Figure 2.3. Which of the following will not cause the production possibility frontier to shift
from ppf1 to ppf2?
A) An unexpected mild spring results in a bumper crop of citrus fruit in both Florida and California.
B) A change in immigration laws significantly increases the number of immigrant workers entering the
country.
C) An innovation in desalinization technology allows for the more efficient conversion of salt water to
fresh water.
D) A radiation leak at a nuclear power plant results in the long-term evacuation of a 10,000 square-mile
area, which significantly reduces the nation’s productive capacity.
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[22-24] Use the circular flow chart below to answer the questions that follow.
22. A student is hired at Kinko’s. Part ______ in the above chart is appropriate to describe this.
A) A
B) B
C) C
D) D
E) E
23. Starbucks in a town earned $10,000 of revenue during the January. Part _______ in the above chart is
appropriate to describe this.
A) A
B) B
C) C
D) D
E) E
24. A household purchased a new BMW car. Part _______ in the above chart is appropriate to describe
this.
A) A
B) B
C) C
D) D
E) E
A
B
C
D
E
