Question

A country has a choice between two products (hats and computers) and two production combinations, A and B. If the country goes from production combination A to production combination B, what will be the opportunity cost? Show your work. Combination computers hats 0 200 1,000 600

Do You agree or not with the statement: Trade is like a football game, there is eventual winner and loser of the game. Explain why you agree or disagree and support your answers.

True or False and explain: An equilibrium at the grocery store is when all of the shelves are full of products.

True or False and why? All markets eventually come to equilibrium. Will they come to equilibrium at the same time for all markets - like for bread, cars, baseball games, and vegetables?

Answer 1

a. When the country was producing combination A, it completely specialised in the production of hats i.e. all the factors of production were used up in producing hats. On the other that, when it shifted to combination B, 200 computers were produced along with 600 hats. This implies that in combination B, an additional 200 units of computers were produced by giving up 400 units of hats. Furthur, in order to produce one unit of hat, the country has to give up the production of two units of hats.

Opportunity cost = Units of hats sacrificed / Units of hats produced

= 400/200

=2/1

=2

Hence, the opportunity cost is 2.

b. The statement, " Trade is like a football game " is incorrect. This is because when two parties enter into trade, it creates value on both the sides. For example, if you are buying a packet of biscuit for money, it provided an income for the seller and utility for the buyer. Hence both parties gained. Unlike in football, where one party loses and the other wins.