Answer Key for Problem Set 1

1.C

2.D

3.D

Detailed answer for 3.

An increase in the technology makes the production possibility frontier shift OUTWARD. The factory's ATTAINABLE combinations of CD players and radios are now larger. If the factory continues to produce the same amount of radios, it can now produce more CD players. If the factory continues to produce the same amount of CD players, it can now produce more radios.

With the new technology, the opportunity cost of an additional radio is GREATER than before, because it has to give up more CD players than before to get one radio.

4.

a)Graph

b)Graph

c) 5, -3

d)x=2, y=-1

e)y=10-3x

5.

a)Graph

b) Tom is working efficiently while Bill not.

c) The opportunity cost of producing one more apple for Bill is 1/2 orange.

d) The opportunity cost of producing one more orange for Bill is 2 apples.

e) The opportunity cost of producing one more apple for Tom is 1/6 orange.

f) The opportunity cost of producing one more orange for Tom is 6 apples.

g) Bill has the absolute advantage in producing oranges.

h) Bill has the comparative advantage in producing oranges.