HOMEWORK #1

Microeconomics

due:

6/19

1. (PPF: Production Possibilities Frontier)

Assume that all resources and technology are fixed for your car
repair shop and the following is work data per day.
point
A
B
C
D
E
F

Brake repairs
0
1
2
3
4
5

Oil changes
20
18
15
11
6
0

A) Draw the production possibilities frontier based on the above.

(Place the quantity of Brake repairs on the X axis and that of
Oil changes on the Y axis.)
B) Are you able to perform 15 Oil changes and 3 Brake repairs?
What does this combination of output suggest about the use of
resources?
C) Are you able to perform 6 Oil changes and 3 Brake repairs?
What does this combination of output suggest about the use of
resources?
D) What is the opportunity cost of expanding Brake repairs
production from 2 to 3?
E) What is the opportunity cost of expanding Brake repairs
production from 3 to 4?
F) How does the opportunity cost of Brake repairs in terms of
Oil changes change as you perform more and more Brake
repairs?
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2. Explain how each event generally affects PPF.

A. The population becomes more educated over time.
B. The unemployment rate rises to 10% from the current full
employment level.
C. The Congress and the President decide to allocate more
resources to national defense.
D. Advance in telecommunications significantly contributes to
economic growth over time.
E. A nation participates in increased international trade with
other nations of the world.
3. Indicate whether each statement is pertaining to
Microeconomics or Macroeconomics.
A. The inflation rate in the U.S. hits its lowest level since the
last decade.
B. The profits of IBM rose 10% during the last quarter.
C. Because of flooding in California the prices of produce are
expected to rise sharply.
D. The nations economy grew at an annual rate of 3% last year.
E. The trade deficit in the U.S. was $20 billion last month.
F. Ford plans to spend $1 billion on a new plant.
4. Indicate whether each one is pertaining to Positive
statement or Normative statement.
A. The minimum wage would be increased so low income
workers can earn a living wage.
B. The unemployment rate is too high and should be reduced
through government actions.
C. The rate of inflation was about 2 % last year, an all time low
for the past decade.
D. The government should take action to break up the
monopoly power of Microsoft.
E. Interest rates should be lower in the U.S. so that people can
afford to build a home.
F. The federal government achieved a budget surplus for the
first time in 30 years.
(End)
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