Discussion Question 1

1.Blossom can allocate her 8-hour day between sewing and cooking. Each hour devoted to sewing yields 2 dresses whereas each hour spent cooking produces 4 cups of soup.

a.Graph Blossom's daily production possibilities frontier.

b.Which of the following daily combinations of output is attainable? Which is efficient? (i) 14 dresses and 8 cups, (ii) 8 dresses and 16 cups, (iii) 9 dresses and 12 cups

c.Blossom's neighbor, Icy, who loves Blossom's soup and happens to be an expert at sewing, is willing to hand over 3 dresses for every 4 cups of soup that Blossom provides. Graph Blossom's consumption possibilities (i.e., budget constraint).

d.How should Blossom spend her time? Why?

2.Consider an economy with a labour force of 10,000. Each worker can produce 100 kilograms of agricultural produce per year or 200 manufactured items.

a.Construct the production possibility frontier (PPF).

b.Suppose the labour force grows by 20 percent. Sketch the new PPF.

c.Suppose instead the productivity of each of the 10,000 workers increases by 40 percent. Sketch the new PPF.

d.Suppose the productivity growth of 40 percent had occurred only in manufacturing. Sketch the PPF.

e.What do you conclude about the effect of factor (i.e., labour supply) growth and productivity growth on the PPF?

[NB. Construct all curves on one graph]

3.Briefly explain and show graphically what will happen to the equilibrium price and quantity of:

a.oranges, if the wages paid to orange pickers rise?

b.fish, if fish oil is found to delay the onset of dementia in old age?

c.taxi trips, if police were to enforce having proper documentation (registration, fitness certification, and insurance) on vehicles used as taxis?

d.beef, if the price of chicken falls?

4.What will happen to the equilibrium price and quantity of yam if an improved fertilizer becomes available (at the same cost as the of old fertilizer)? Why don't farmers charge the same old price and make extra profits? Explain and show graphically.