Section Exercises for January 25/26: Econ 1: Spring 2016: U.C. Berkeley
1) The economy of the university town of Avicenna (if you wish, cf.: Peter Beagle (1986): The Folk of the Air http://amzn.to/1RxRFQJ (New York: Del Rey: 0345337824)) produces two and only two commodities: yoga lessons, and triple lattes. The economy is able to produce any of the following combinations of yoga and lattes per day:
a) Using the data in the table, graph the daily production possibilities frontier (ppf) of the Avicenna economy. Put triple lattes (“TL”) on the vertical axis.
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b) Does the principle of “increasing opportunity cost” hold in this town’s economy? Think about what happens to the opportunity cost of TLs—measured in units of yoga lessons (“YL”)—as the amount of resources devoted to producing TLs increases. Explain briefly.
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c) On your graph, pick and label one point that is: (i) an impossible and unattainable level of YL and TL production, (ii) an attainable but inefficient level of YL and TL production, (iii) an efficient level of production of YL and TL, (iv) a value-maximizing level of production of YL and TL if a TL is worth $2.50 and a YL is worth $10; (v) a value-maximizing level of production of YL and TL if a TL is worth $1 and a YL is worth $10; and (vi) a value-maximizing level of production of YL and TL if a TL is worth $5 and a YL is worth $10.
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2) An overweight economics professor (OEP) consumes two and only two foodstuffs a day: kale chips (“KC”) and crème brûlée (CB). He is made equally happy by consuming any of the following combinations:
a) Using the data in the table, graph the daily consumption combinations that make the OEP equally happy. Put servings of kale chips (“KC”) on the vertical axis.
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b) Does the principle of “diminishing marginal utility” hold for this OEP’s psychology? Think about what happens to the attractiveness of KCs—measured in units of crème brûlée (“CB”)—as the amount of CB consumed increases. Explain briefly.
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3) The economy of the university town of Old Stick, home of Crony Capitalism University, produces two and only two commodities: social network startups (“SNS”), and triple lattes (TL). The economy is able to produce any of the following combinations of SNSs and TLs per day:
a) Using the data in the table, graph the daily production possibilities frontier (ppf) of the Old Stick economy. Put triple lattes (“TL”) on the vertical axis.
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b) Does the principle of “increasing opportunity cost” hold in this town’s economy? Think about what happens to the opportunity cost of SNSs—measured in units of TLs—as the amount of resources devoted to producing TLs increases. Explain briefly.
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c) On your graph, pick and label one point that is: (i) an impossible and unattainable level of SNS and TL production, (ii) an attainable but inefficient level of SNS and TL production, (iii) an efficient level of production of SNSs and TLs.
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