Macroeconomics

Jessie Verdugo

BU204-01

September 16, 2012

QUESTION 1:

B) Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Due to lower resources available for catching fish there is no way to produce 500 pounds of fish and 800 pounds of potatoes. By using enough resources to produce 800 pounds of potatoes, the maximum amount of fish would be 300 pounds.

C) What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds? The opportunity cost of this increase is 200 pounds of fish. If they wanted 500 pounds of fish, they would have to only produce 600 pounds of potatoes.

D) What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds? The opportunity cost would only be 50 pounds of fish for increasing potato production from 200 to 400 pounds. Fish production would be cut from 650 pounds to 600 pounds of fish

E) Can you explain why the answers to parts c and d are not the same? The answers are not the same in quantity because the more potatoes that are produced the higher the opportunity cost will be. To produce more potatoes you would need more resources (ie; land to grow the potatoes, people to harvest them) and you would have less resources for catching fish.

F) What does this imply about the slope of the production possibility frontier? This would imply that the more the PPF is moved to the right, the steeper it becomes.

QUESTION 2:

A) Do you think Peter Pundit is correct or not? If not, what do you think is the source of his mistake? Peter is not correct and the source of his mistake is the difference between absolute advantage (absolute advantage: A country, individual, or firm has an absolute advantage in producing a good if production of the good absorbs fewer resources than are required in other countries or by other individuals or firms.) and Comparative advantage (comparative advantage: A comparative advantage in producing or selling a good is possessed by an individual or...