Problem Set 1

ECON 200

1. What are opportunity costs, and why do economists spend so much time talking about them?

2. Use the concept of incentives to explain how patent and copyright laws promote innovation.

3. Draw a production possibilities frontier (PPF) for Goods A and B. Suppose that these goods are subject to increasing relative costs in production, and be sure that your graph reflects this fact.

Now suppose that a new and innovative technology enhances the production of Good A but not Good B. Illustrate how this new innovation changes the production possibilities frontier (PPF).

4. The table below shows the maximum number of paintings and sculptures Rodin and Michelangelo can complete in one year.

a. Fill in the rest of the table with the opportunity cost of paintings and sculptures for each artist. Be sure to include the units.

b. Identify who has a comparative advantage in producing each good.

	Maximum Paintings	Maximum Sculptures	Opportunity Cost of 1 Painting	Opportunity Cost of 1 Sculpture
Rodin	2	12
Michelangelo	5	3