Opportunity Cost of Shifting Production Choices - Essay Example

PART I Question If France produces cars and camcorders only using specialized resources, which means some resources are more suitable in producing cars while others are more suitable for producing camcorders, then, considering the two graphs based on the initial description of specialized resources, graph 2, which is concave in shape best represents the trade-off France faces between producing cars and carmcorders. The concave shape of Graph 2 therefore, indicates that as France produces more cars and fewer camcorders, the opportunity cost of producing each additional car increases. Question 2 John and Akila illustrated that opportunity is value foregone for producing one product instead of the other (507). Opprotunity Cost of Shifting production Choices Production possibility frontier (PPF) of an economy producing clothing and coal. Initially, the economy produced 96,000 garments of clothing and 60,000 tons of coal, which is represented by point A. A. The opportunity cost of producing an additional 20,000 tons from 60,000 tons to 80,000 of coals is A. 16,000 garments of clothing B. The opportunity cost of producing an additional 20,000 tons from 80,000 tons to 100,000 of coals is B. 20,000 garments of clothing. Comparing answers of A and B above, the opportunity costs of additional 20,000 tons of coal at point B is C. greater than the opportunity costs of additional 20,000 tons of coal at point A. This reflects D. the law of increasing opportunity costs. Question 3 Australias’ Production Possibility Frontier (PPF) for both Agricultural and capital goods Graph 1: Current Position Graph 2: New position following improvement of soil If soil quality is improved, the initial production possibility frontier shift from left to right as shown by the second new production possibility frontier in graph 2 with a red curve. So the new curve representing effects of improvement of soil is the red curve. Question 4 (A): Jacks initial production possibilities frontier (PPF) plotted below. Question 4 (B) A. If Jack is currently using D combination of producing 1 train per day, the opportunity cost of producing a second train per day is 2 drums per day B. If Jack is currently using C combination of producing 2 train per day, the opportunity cost of producing a third train per day is 7 drums per day C. As Jack increases production of trains, his opportunity costs of producing one more train increases. Jack’s second production possibilities frontier (PPF) after acquiring a new tool The new graph is rotated upwards to the right to signify improved production of trains. D. If Jack acquires a new tool to produce twice as many trains per hour as before without affecting his ability to produce drums, the production possibility frontier adjust to the right as shown below. Therefore, jack’s opportunity cost of producing drums is higher than it was previously. Question 5 A. The points in the graph that represent output combinations that are productive inefficient are E and F only. B. The points in the graph that represent output combinations that are productive efficient are A and B only. C. The points in the graph that represent output combinations that are productive inefficient are C and D only. Terms of Trade Question 6 If both two countries, Greece and Denmark produce oil and wine, the opportunity cost of Greece producing a bottle of wine is 3 barrels of oil, while the opportunity cost of Denmark producing a bottle of wine is 8 barrels of oil. A. Based on the above opportunity costs of Greece and Denmark, Greece has comparative advantage of producing wine B. On the other hand, Denmark has comparative advantage of producing oil. C. If Greece and Denmark consider trading wine and oil with each other, Greece can gain from specialization as long as it can receives more than 3 barrels of oil for each bottle of wine it exports to Denmark. D. Denmark can also gain from specialization as long as it can receive more than 1/8 of a bottle of wine for each barrel of oil it exports to Greece. E. Based on the answer to D, the terms of trade that would benefit both Greece and Denmark are; a. 4 barrels of oil per bottle of wine b. 7 barrels of oil per bottle of wine Question 7 Freedonias’ and Sylvania’s Production Possibility Frontiers (PPF) 1 and 2 respectively for both tea and potatoes Freedonias’ PPF1 Sylvania’sPPF 2 A. Freedonia has comparative advantage in producing Potatoes B. Sylvania has comparative advantage in producing Tea. C. If Freedonia and Sylvania specializes in production of goods for which each has comparative advantage, together, the two countries can produce C. 12 million pounds of tea and D. 16 million pounds of potatoes. PART II 2.1 From the article, Two-Thirds (E) of elite business travelers felt that the United States treated its foreign visitors worse than any other country in the world. 2.2 If the first bill introduced mandates doubling of security to increase probability of catching a terrorist from 10% to 20% without changing position of the blue curve. Graph showing effect of new bill when security is doubled. The effect of the new bill is movement from point A to point B in red along the unchanged blue curve. In addition, If the first bill introduced mandates doubling of security to increase probability of catching a terrorist from 10% to 20% without changing position of the blue curve, the opportunity cost of increased security is A. 15 million visitors per year given that initial numbers of visitors were 55 million at a security of 10%. 2.3 The first bill introduced mandates doubling of security to increase probability of catching a terrorist from 10% to 20%, a situation which is not satisfactory to some. In response, one representative introduced a bill to increase security by additional 10% from 20% to 30%. If the position of the curve is not changed, the opportunity cost for additional measure is E. 40 million visitors per year. 2.4 Referring back to answers in 2.2 and 2.3, the opportunity cost of increasing the probability of catching a terrorist from 20% to 30% is A. greater than the opportunity cost of increasing that probability from 10% to 20%. 2.5 Production possibilities frontier (PPF) showing increased security measures and respectful immigration and custom officials. According to the article, foreigners do not ask America to reduce its security measures, instead they want to be treated with respect, professionalism and courtesy: Assuming that the above statement is right and that training customs and immigration officials to be more polite to foreign visitors make visitors feel more welcome without any negative effect on available security outcomes. The blue curve will shift to the right as shown in diagram from the blue curve to the red curve. 2.6 Assuming that the United States train its customs and immigration officials to be more respectful, it is true that United States would be able to have both a higher level of security and more tourism than at point A in the graph above, a higher level indicated by the red curve. Meaning that United States no longer have to face a tradeoff between security and the number of visitors to the United States. Sources Taylor, John, and Akila Weerapana. Principles of Microeconomics: Global Financial Crisis. 6th ed. New York, NY: Cengage Learning, 2009. Read More