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Page 6 a. The two variables are (i) the economic welfare of the country’s citizens, and (ii) the quantity of the country’s economic resources. b. The quantity of the country’s economic resources is the independent variable (since it is the cause) and the economic welfare of the country’s citizens is the dependent variable (since it is the effect). c. The relationship is direct, because a movement in the independent variable’s value leads to a movement of the dependent variable’s value in the same direction. d. The statement is positive, since it is a description of reality that does not depend on value judgements. e. For the country described in the statement, the economic problem of scarcity has become more severe. Page 11 1a. The opportunity cost of the first fish is 4 coconuts, since coconut production is reduced from 24 to 20 when the first fish is caught. Similarly, the opportunity costs of the second and third fish are 8 (= 20-12) and 12 (= 12-0) coconuts. b. These results conform with the law of increasing opportunity costs, because as fish production is increased so is the opportunity cost of each new caught fish. c. The curve bows out to the right, reflecting the law of increasing opportunity costs. d. Besides the assumption that only two goods are produced, we must assume that the quantity of the castaway’s resources and the technology he uses are fixed, and that his resources are employed to their full capacity. e. With more labour devoted to acquiring coconuts and fish, the castaway’s production possibilities curve shifts outwards, with both its vertical and horizontal intercepts increasing. f. With a new capital asset that can be used to acquire fish, the castaway’s production possibilities curve shifts outwards, with its horizontal intercept (but not its vertical intercept) increasing. 2a. Since 1 computer must be sacrificed to gain 600 new hamburgers when moving from points d to c, then the opportunity cost of each of these hamburgers is 1/600 of a computer. b. When moving from points b to c, 1 computer must be sacrificed to gain 300 new hamburgers, which means that the opportunity cost each of these hamburgers is 1/300 of a computer. 3 a. b. Yes, the curve bows out to the right. This shows that, as more of one item (eg. fish) is produced, the higher the opportunity cost of these additional units of the item. Page 19 a. Beta is likely to have more economic freedom, given the greater importance of Beta’s private sector and the consumer sovereignty it promotes. b. Alpha is likely to have more economic stability, because of the relative importance of its traditional and public sectors. Both of these sectors tend to reduce economic instability. c. In Alpha, traditional culture and national planners are more likely to conflict, given its relatively large traditional and public sectors. d. In terms of the triangle shown in Figure 1.4, Alpha will be southeast of Beta because it has stronger elements of both a traditional economy and a command economy. |