IEPP : Class Problem Set One
1) Economists study many issues, but all of them stem from the central economic problem of scarcity. Scarcity arises because there are constraints for both consumers (e.g. limited time, information and income) and sellers (e.g. limited resources to produce goods and services). Some people suggest that the problem of scarcity will eventually disappear with the development of new technology and resulting higher levels of production.
Is this True/False?
2) Because of scarcity we have to make choices about which goods and services we desire most. Choices involve sacrifices or costs. If as a society we consume more of one good or service then, unless there are idle resources, we will be able to consume less of other goods and services. The cost of one good measured in terms of what we must sacrifice is called the:
3) Explain the concept of a Production Possibility Frontier
4) Now suppose you have a PPF for an economy producing bricks or bread. The maximum bricks produced per day is 55,000, the maximum bread is 110,000 loaves per day.
a) Sketch this
b) How will the PPF change if new machines are available for bread production?
c) The country improves its education and training of new workers.
d) The country reduces unemployment.
5) In a hospital the opportunity cost of one heart operation is 4 hip replacements. If all
resources are used in heart operations the hospital can undertake 100. How many hip replacements can it do if it devotes all its resources to this? If 50 heart operations are completed how many hip operations are possible? Draw the hospital’s PPF. Why is it unlikely that a real PPF would have this shape?
For the above hospital PPF mark the following combinations and comment on their
feasibility and efficiency.
i) 60 heart and 100 hip operations
ii) 80 heart and 300 hip operations
iii) 20 heart and 320...