Homework #1

1. (two points each) Identifications: Briefly identify each of the following terms and then provide a one or two sentence explanation for why each term is important.

• Positive
• Normative
• Y-intercept form
• Slope
• Cross-sectional data
• Time series data
• Slope distortion
• Opportunity cost
• Trade-offs
• Macro Goals

2. (two points each) Identify the slope and the y-intercept for the following equations.

a. 2X = 4Y + 20

b. 2Y = 8X + 100

c. 2Y - 4X = 48

d. 2XY = 10Y + Y2

e. 2(X + 3Y) = 60

3. (nine points) Solve the following sets of equations to find the solution (X, Y). Show your work.

a. Y = 2X + 10
Y = 4X - 10

b. X = 3Y + 99
X = 6Y - 33

c. 2Y = 10X - 100
4Y = 52 - 8X

4. A country estimates its production possibility frontier for its production of civilian goods and defense goods. It plots its current point of production and finds that this point is not on the production possibility frontier. Describe this economy using graphs to illustrate your ideas. What observations would you make about this economy if you would asked to evaluate it and make recommendations for the future?

5. The same country depicted in (4) decides it would like to produce at a point that is beyond its production possibility frontier. As an economist advising this nation, what would you say to them about this goal?

6. Use the information in the table below to answer the following question.

                     Production of Good X              Production of Good Y

                                    10 units                                    20 units

                                    20 units                                    10 units

The numbers in the above table tell us two different combinations of X and Y that this country can produce and that are on this country's production possibility frontier. Assume that this country has a linear production possibility frontier.

a. What is the maximum amount of good X that this country can produce if it only produces good X?

b. What is the maximum amount of good Y that this country can produce if it only produces good Y?

c. What is the slope of the production possibility frontier for this country?

d. Does the production possibility frontier for this country represent increasing, decreasing or constant opportunity cost?

7. (sixteen points) Answer true, false, or uncertain for each of the following statements. For any statements that you mark uncertain explain why your answer is ambiguous.

a. A country's production possibility frontier is always bowed out from the origin.

b. Specialization of resources results in there always being an opportunity cost of production.

c. Opportunity cost is a concept that has little practical significance.

d. It is theoretically impossible for one country to have no comparative advantage in production with respect to another country.

e. The boundary of the production possibility frontier illustrates the concept of trade-offs.

f. Only a normative viewpoint would agree with the statement that "George W. Bush won the election in the fall of 2000".

g. Speaking from a positive point of view: In the Presidential election of 2000, Florida should have manually recounted the votes cast for the Office of President.

h. Technological change that leads to a shift in the industrial structure of employment must necessarily result in a net loss of jobs.

8. Pick one of the short essays you have read in The Accidental Theorist and provide a short summary of its main point(s) and an evaluation of Krugman's argument.