Principles of Macroeconomics Neil Robert ECON 1250 Fall 2017 Assignment #1 (20 marks) Due: Wednesday, September 20, 2017 1. A simple economy has 100 workers and produces only two goods - coffee and doughnuts. Labour is the only factor of production, but some workers are better suited to producing coffee than doughnuts (and vice versa). The table below shows the maximum amount of output of each good possible from various levels of labour input. Number of workers Monthly production of coffee Number of workers Monthly production of producing coffee (hundreds of pounds) producing doughnuts doughnuts (hundreds) 0 0 100 600 25 20 75 550 50 50 50 400 75 75 25 150 100 80 0 0 b ) On graph paper, plot the production possibilities frontier for this economy. (2 marks) If the economy is currently producing 2000 pounds of coffee (20 hundreds) and 55 000 doughnuts (550 hundreds), what is the opportunity cost of producing another 3000 pounds (30 hundreds) of coffee? (2 marks) Can this economy produce 40 000 doughnuts and 4000 pounds of coffee? Explain. (2 marks) Can this economy produce 30 000 doughnuts and 6500 pounds of coffee? Explain. (2 marks) Suppose that the technology used to produce coffee improves so that the maximum amount of coffee produced from any given amount of labour increases by 10%. Illustrate on graph paper what happens to the production possibilities curve. (2 marks) 2. Consider the following simplified example showing production possibilities for Colombia and Costa Rica. The numbers represent the production that one unit of resources can produce in one week. Assume each country has ten thousand units of resources. Product Colombia |Costa Rica Coffee (tonnes 10 20 Softwood Lumber (tonnes) 4 16 Which country has an absolute advantage in coffee? In softwood lumber? Explain. (3 marks) Calculate the opportunity cost of softwood lumber in Colombia and Costa Rica. (2 marks) Calculate the opportunity cost of coffee in Columbia and Costa Rica. (2 marks) Which country has a comparative advantage in coffee? In softwood lumber? Explain (3 marks) Notes: Show all of your calculations and explain your steps. When drawing graphs, try to be as accurate as possible; poorly drawn or inaccurate graphs will lose marks. You can think about the assignment in a group, but you have to convince me that you wrote the answer alone; copied assignments will receive zero