1. (Opportunity Costs) Discuss the ways in which the following conditions might affect the opportunity cost of going to a movie tonight:

a. Having a final exam tomorrow.

b. School will be out for one month starting tomorrow.

c. The same movie will be on TV next week.

d. The Superbowl is on TV tonight.

2. (Absolute and Comparative Advantage) You have the following information concerning the production of wheat and cloth in the United States and the United Kingdom

Labor Hours Required to Produce One Unit

United Kingdom United States

Wheat 2 1

Cloth 6 5

a. What is the opportunity cost of producing a unit of wheat in the United Kingdom? In the United States?

b. Which country has an absolute advantage in producing wheat? In producing cloth?

c. Which country has a comparative advantage in producing wheat? In producing cloth?

d. Which country should specialize in producing wheat? In producing cloth?

3. (Shape of the PPF) Suppose a production possibilities frontier includes the following combinations:

Data Point Cars Washing Machines

A 0 1000

B 100 600

C 200 0

a. Look at the graphed PPF below, assuming that it has no curved segments.

b. What is the cost of producing an additional car when 50 cars are being produced?

c. What is the cost of producing an additional car when 150 cars are being produced?

d. What is the cost of producing an additional washing machine when 50 cars are being produced? When 150 cars are being produced?

e. What do the answers tell you about opportunity costs?