Question 1

1. Discuss what you think economics is concerned with addressing.

1. Countries A and B, produce two products: Widget and Thing. Assume that for a given amount of land and capital, the output of these two products requires the following constant amounts of labour:

Production	Country A Labour	Country B Labour
1 of Widget	4	5
60 of Thing	5	10

Assume that each country has 30 million workers.

(i) If there is no trade, and in each country 20 million workers produce Widget and 10 million workers produce Thing, how many Widget and Thing will each country produce? What will be the total production of each product?

(ii) What is the opportunity cost of a gadget in: (i) Country A; (ii) Country B?

(iii) What is the opportunity cost of 60 Thing in: (i) Country A; (ii) Country B?

(iv) Which country has a comparative advantage in which product?

(v) Explain the principle of increasing opportunity cost. Does this example illustrate the principle of increasing opportunity cost?

(vi) What change might shift both country's production possibilities frontier outwards?