CHAPTER 2
ECONOMIC TOOLS AND ECONOMIC SYSTEMS
SOLUTIONS TO END OF CHAPTER PROBLEMS
1. This question highlights the importance of ignoring sunk costs in marginal decision making.
2. The opportunity cost is the total cost of going to Florida and includes dollar costs incurred as
well as the forgone opportunity of working. Assuming you would work for 5 days if you
3.
a. In the United Kingdom, the opportunity cost of one unit of wheat is 1/3 unit of cloth
c. The United States has a comparative advantage in wheat because it has the lowest
4. Students’ answers will vary according to their experiences. One specialized market is that for
military weapons. The stock exchange provides a specialized market for buying and selling
5.
Chapter 2 Economic Tools and Economic Systems 2
a. The PPF drawn above is composed of two straight-line segments: AB and BC.
b. The cost of a car when 50 cars are produced is 4 washing machines. In segment AB, as
150 cars cost you 6 washing machines.
d. The cost of a washing machine when 50 cars are produced is one-fourth of a car. In
answers to this question are the inverse of the answers to questions (b) and (c).
e. As you increase the production level of either good, its opportunity cost eventually
6. The PPF will shift inward along the axis measuring cloth production and outward along the
7.
a.
b. Moving upward and to the left along the PPF could be represented by a move from point
C to point B. You would be giving up some partying to engage in more studying. You
few more hours of the week.
c. The PPF drawn assumes that you have a fixed amount of time as well as some capital. The
8. Items a, c, and d all decrease the amount of labor available; thus, the PPF would shift inward.
9. The government represents an element of command in the U.S. economy. Government
accounts for about one-third of all economic activity. In addition, government regulates the