Economics Chapter 2 Homework A positive economic statement is one that can be tested and validated; a positive economic statement is based on fact and tells “what is.”

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3. There are dif fer ent ways to draw production pos-

sibilities frontier curves. Yours should look some-

thing like the following:

PPF

The efficient points are along the frontier. The

duce an extra unit because you have already used

the best resources for that unit.

Almost any two goods should reflect this

increasing opportunity cost. Consider the

following example of a society that produces only

two goods: corn and diamonds. The first 20

diamonds that they produce come from land that

Questions for Review

1. A positive economic statement is one that can be

tested and validated; a positive economic state-

ment is based on fact and tells “what is.” A nor–

mative economic statement cannot be tested or

validated; a normative economic statement is

often one of opinion and tells what “should be.”

Hints and Common Errors: It’s easy to

confuse the definitions of positive and normative.

Here’s one way to remember. When you think of

“positive,” think of scientific tests for diseases

that either come back positive or negative. These

are tests, and the absence or presence of a disease

five legs.” This is obviously not true, but it is still

a positive statement. It can be tested and found

false by finding just one dog that does not have

five legs.

2. No. It is extremely difficult to build a model that

is completely realistic. First, all relevant variables

would have to be included—in many cases, this

Solutions to Chapterfi2 Text Prob lems

One Batch of

Choco late Chip Cookies

One Glass of

Lemonade

comparative advantage in cookies (Bert gives up

only two glasses of lemonade compared to Ernie’s

three). Without trade, suppose Bert spends 30

minutes a day baking cookies and 90 minutes a

day making lemonade, while Ernie spends 45

minutes a day baking cookies and 75 minutes a

day making lemonade. This means that together

they produce one and a half batches of cookies

and eight glasses of lemonade. If they specialize

and trade, they can produce two batches of cookies

8. The most impor tant factor for economic growth

is investment in capital goods. The more we

Study Prob lems

3. Your economics professor should prob ably not take

time out of his or her teaching schedule in order to

mow the lawn. Suppose your professor can produce

to mow the lawn instead, and both are better off.

Hints and Common Errors: Another way

to think about this question is to think about how

5. No, even if you have an absolute advantage in

every thing, you should not undertake every thing

on your own. What matters is your comparative

has the comparative advantage, then he or she

can produce more in total than if the two workers

each produced both goods. When people special-

ize, more can be produced, and this gain can be

split. Every one is better off.

Hints and Common Errors: Remember

that comparative advantage is a comparison

word—it means that if one person has the

comparative advantage in one good, then the

other person, by definition, has the

“Alex is better at being short than Kelly.”

Comparative advantage works the same way.

6. To determine which of two workers has a com-

parative advantage in a task, you look at each

worker’s opportunity cost. The worker with the

lower opportunity cost is the one with the compar–

ative advantage in that task. For example, sup-

pose two workers can make either gift cards or

hot dogs. The opportunity cost of one gift card is

7. To make a trade, all you need is for one worker (or

country) to have a comparative advantage. Even if

one of the workers has the absolute advantage in

Solutions to Chapterfi2 Text Prob lems / 51

Number of

solar energy

facilities

cannot move here

can move here

currently here

9. Unemployment would be a point inside the fron-

tier. There are resources ( people) that are not

being used efficiently. If jobs were provided to

those who are unemployed, then it would be pos-

si ble to increase production in one sector without

having to give up production in another. For

example, suppose the unemployed were hired to

build a bullet train from Seattle to Los Angeles.

The bullet train would be produced without hav–

ing to give up production in the food or manu-

facturing sectors. Therefore, full employment

would be a point on the frontier. At full employ–

Guns

work harder than usual

Of course, the question specifically refers to

your professor taking time out of his or her

teaching schedule to mow the lawn. It is pos si ble

that the value of the professor’s time varies

according to the time of year. In the summer,

when your professor does not teach, the value of

time might be much lower, and he or she may

5. Your decision to invest in a college degree today

adds to your capital stock. You are investing in

your human capital so that you will be able to pro-

duce and earn more in the future. This shifts out

your future PPF. With a college degree, you can get

a job that allows you to earn and buy more.

PPF with a college degree

7. Assuming that resources are already being effi-

ciently used in other programs (i.e., there is

nowhere to take money from other programs

economy will produce fewer barbells and

sandals than it is capable of. That output cor–

responds to a point in the interior of the

Barbells

Sandals

possibly enough so that point C will no longer

lie outside it.

Barbells

10. The following lines illustrate the opportunity

costs and trade– offs in the poem.

Line 2: “And sorry I could not travel both”

13. a. The skills and tools required to make barbells

are dif fer ent from those required to make san-

dals, so some workers will have a comparative

advantage at making barbells, while others

will have a comparative advantage at making

sandals. For reasons explained in the text, that

situation leads to a PPF with the familiar

bowed- out shape.

Barbells

b. When workers are laid off during a recession,

the economy begins to run at less than full

capacity. During Barrville’s recession, the

Barbells

cream sales to increase and more people to

swim— and, therefore, drown.

Hints and Common Errors: One of the

reasons economists build models is to see the

change that occurs when just one variable

changes. It’s not enough to look at correlations;

correlation doesn’t prove causation, and causation

is especially impor tant when thinking about

policies. Think about a policy that is based on the

statement in this question. If it is true that ice

cream sales cause drowning, then a reasonable

ting dash cams so that if they’re in an accident,

they can prove they were not at fault. In short,

it’s really the accidents that cause the increase in

dash cams, not the other way around.

b. The statement fails to recognize a common

cause, namely, a seasonal increase in ocean-

based recreation, which, on the one hand,

means that more people are out boating and

need life jackets, and, on the other hand,

means that more people are swimming where

sharks can attack them.

Appendix Study Prob lems

1. a. The following table plots the data provided in

the table:

1.00

1.25

1.50

Price per

apple ($)

b. The relationship between the price of apples

and the quantity demanded of apples is nega-

tive. From the table, we can see that as the

price of apples increases from $0.25 to $1.50,

the quantity demanded of apples falls from 10

to 0. Graphically, you can see that the rela-

tionship is negative because the slope is nega-

tive and the line is downward sloping.

3. This sentence confuses correlation with causa-

tion. Here, there is a correlation. Ice cream sales