Name:_________________________

ECO 200 820 Principles of Macroeconomics Homework #1, due Friday, 2/9

  1. Suppose the country of Mexico produces only two goods: oranges and sweaters. The production possibilities curve is graphed below.


    1. Consider the four points labeled on the diagram. Describe each point in terms of its attainability and desirability. Is there one "best" point for the economy to produce at this time?

      2.  

       
       
       
       
       

    2. Suppose a Presidential candidate in Mexico promises to bring production to point C. Explain why this is a problem? What is necessary to get to point C?

     
     
     
     
     
     
     
     
  2. Consider the plight of North Korea as described in Chapter 1 (pages 9 and 10).
    1. What is the central scarcity issue in the North Korean economy? How did they end up at a point on their PPC that causes widespread famine? (think about who decides what, how, for whom to produce)

      2.  

       
       
       
       
       
       
       
       
       
       
       
       

    2. The U.S. has both a large military and an abundant food supply. Why the difference from North Korea?

     
     
     
     
     
     
     
     
     
     
     
     
  3. Consider the following markets below. For each market, SHOW AND EXPLAIN the changes that occur from the event listed.
    1. The market for corn oil: Droughts in the Midwest devastate the corn crop.


    2. The market for turkey: Fertility drugs increase turkey births, and health conscious Americans eat low fat diets.


    3. The market for Jeeps: The price of gasoline rises 25% in 3 months.