Comments on Problem Set #1

Here are some comments and helpful hints for dealing with some of the homework problems.

For problem 4:

a. A "typical" PPF is bowed out or concave. Of course you have no numbers to plot but you can just sketch one that has that shape on a set of axies marked as directed. There should be one PPF. When answering (b) and (c), we assume both countries have the equivalent PPFs (so just show on one) but choose different points on the PPF reflecting each country's choices.

d. Be careful! One country produces alot of consumer goods, one country produces a little bit. From the example in class on Wednesday with the trucks and corn, it is more costly, in terms of corn, to move from C to D than it is from B to C. Apply that to your points you pick in part b and c.

e. We mentioned before that "capital" was a resource. It is a "produced resource" rather than occurring naturally. So the more capital a country has the greater their ability to produce.

f. the choice is consume or make new capital. New capital helps the economy grow. So if you want to grow you make more capital. If you want to grow you produce less ___________ .

g. since each country produces capital you should be able to produce more of both goods in the future. But the country that produces more capital should be able to produce more than the other country in the future.

Problem 5

a. The PPFs will be linear, not concave. (Understand why.) Also, you should assume a 12-hour work day. (Sorry, that part wasn't made clear.)

d. Many people are trying to come up with a mutually advantageous trade scheme and are finding it difficult. The reason you're having difficulty is if you're trying to trade whole units based on one 12-hour day production you'll at best find one person gaining but the other no better (or worse off). HOWEVER, the question does not ask you to come up with a trade deal. You are only required to say who specializes in and trades away which good. This answer is based merely on comparative advantage and opportunity cost (which you find in b and c). So the answer is something along the lines of:

(Chris/Pat) produces and trades (one of the goods) because (s)he has the lowest opportunity cost producing (that good).

Q: what gender are Chris and Pat?


There will be more comments as questions arise. I hope these are helpful.

Also keep in mind that the tutoring hours are MTW (not MWF as listed on the homework handout.