Assignment: The Economic Problem: Scarcity & Choice
Chips or Salsa?
In this assignment, you will demonstrate your ability to draw a simple production possibilities curve given data on the quantity of one input (labor) and the amount of labor required to produce each of two outputs (bags of chips and cases of salsa). You should also be able to identify the opportunity cost of one good in terms of the other as the slope of the Production Possibilities Frontier. You will explain your analysis of the figures to explain why it's not possible to produce combinations of the two goods outside the PPF.
Chips or Salsa?
Suppose a nation has a total of 12 units of labor, which can be used to produce either chips or salsa.
One bag of chips takes 2 units of labor to produce and onecase of salsa takes 6 units of labor to produce.
• Explain why scarcity exists in this economy. Use the data as evidence of your reasoning.
• What is the maximum quantity of chip bags that can be produced?
• What is the maximum quantity of salsa cases than can be produced?
• Draw the nation's production possibility frontier.
• What is the opportunity cost of bags of chips in this nation?
• Explain why the nation can't produce both 4bags of chips and 3cases of salsa.
• Explain why the nation shouldn't produce both 2bag of chips and 1cases of salsa.