Exam 2: The Economic Problem: Scarcity and Choice

Refer to the information provided in Scenario 2 below to answer the questions that follow. SCENARIO 2: Assume that two countries are the same in every way except that one allocated more of its resources to the production of capital goods as opposed to consumer goods. -Refer to Scenario 2. Now assume that the countries are not alike, but that one is wealthier than the other in that it has more resources. Graphically illustrate this scenario using the production possibilities frontiers.

Why does the production possibility frontier have a negative slope?

Refer to the information provided in Scenario 1 below to answer the following questions. SCENARIO 1: Consider the following data for the harvest of crabs versus the harvest of fish off the coast of Virginia in answering the following questions. -Refer to Scenario 1. Explain how this economy might be able to produce 45 fish and 45 crabs?

Suppose the CEO of a major corporation has five subsidiary companies. Only one of these companies is making better than the return on similar investments that the company could be making if it invested its financial capital outside the company. The CEO tells each of these subsidiary companies that the rate of return that they are earning is not acceptable and must rise to the level of these identified companies. He tells them if they can't come up with a plan in twelve months that their companies will be sold. If each of these companies was actually making money can you come up with an economic argument for why it is still rational for this CEO to sell them if they don't abide by his directive.

Suppose that there are two goods that a small island nation can produce - coconuts and breadfruit. If the inputs for both goods are perfectly interchangeable and there is never a rise or fall in opportunity cost explain what the production possibilities frontier should look like and why.

What can we say about the employment of resources if the economy is at a point on its production possibility frontier?

Using a graph, show how economic growth affects the production possibility frontier.