Production Possibilities, Scarcity, Choice& Gains to Trade Individual Assignment
Economics
Dr. D. Foster
Production Possibilities, Scarcity, Choice& Gains to Trade – Individual Assignment
The story: The island nation of Avalon has a population of 100, all workers (they must send their children and elderly elsewhere – don’t ask me about it!). Avalon is situated near some rather productive fishing beds. Each worker can be used to harvest 2 pounds of potatoes (per day), or catch 4 fish (per day), or some combination depending on how they split up their time. Each worker is the same in this regard. The minimum sustainable level of consumption is 0.5 pounds of potatoes and 1 fish, per person, per day. Use this information to answer these questions:
1. What does the “minimum sustainable level of consumption” mean? Would individuals be content with consuming only this minimum level of consumption? Explain.
2. Can this society produce the minimum necessary to survive? Explain how.
3. If everyone fishes, how many can they catch? What would be the problem here?
4. If everyone harvests potatoes, how much can they produce? What would be the problem here?
5. If this society produces the minimum amount of fish necessary, how many pounds of potatoes can they harvest with the rest of their resources?
6. If this society produces the minimum amount of potatoes necessary, how many fish can they catch with the rest of their resources?
7. Draw a graphical representation of the tradeoff between the
(total) production of potatoes and fish that this society faces.
7a. What do you note about how this graph looks?
7b. Can you identify an equation for this line?
7c. What is the slope of this line? What does it mean?
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Something to think about: How do you think potatoes and fish are distributed in Avalon? What happens if someone is sick? What if they just decided to skip work? What kind of allocation system do you think will work best here?
Economics
Dr. D. Foster
Production Possibilities, Scarcity, Choice & Gains to Trade – Group Assignment
Avalon (con’t.)
7d. What does it cost these people when they:
(i)want to catch one more fish?
(ii)harvest one more pound of potatoes?
8. If the people of Avalon like to consume potatoes and fish in a 1:1 ratio (that is, one lb. potatoes with 1 fish, or 2 lbs. with 2 fish, etc.), what would be the “best” production mix? Fractional values are OK. [Solve algebraically, intuitively, or through trial and error.] What is the “standard of living” on Avalon, stated in terms of potatoes and fish?
9. If a politician promises that, under his leadership, Avalon’s standard of living can be 2 pounds of potatoes and 2 fish per person (per day), do you vote for him/her? Explain.
10. What do you note about the relationship between what can be produced and what can be consumed in this example?
Wait to answer the next set of questions
11. OK, things have changed a bit. You find that there is a nearby island, Hosk, that has a similarly sized population, with whom you may trade.
- Talk with them.
- Find out what they want and what they are willing to give in exchange.
- See if you can’t come to some trade arrangement that will raise your standard of living.
11a. What is your new production mix?
11b. What do you trade away (and how much)?
11c. How much do you get for what you trade away?
11d. What is your new standard of living?
11e. What do you now note about the relationship between what can be produced and what can be consumed?
Economics
Dr. D. Foster
Production Possibilities, Scarcity, Choice & Gains to Trade – Individual Assignment
The story: The island nation of Hosk has a population of 100, all workers (they must send their children and elderly elsewhere – don’t ask me about it!). Hosk has rather fertile soil, making it especially productive for growing potatoes. Each worker can be used to harvest 4 pounds of potatoes (per day), or to catch 2 fish (per day), or some combination depending on how they split up their time. Each worker is the same in this regard. The minimum sustainable level of consumption is 0.5 pounds of potatoes and 1 fish, per person, per day. Use this information to answer these questions:
1. What does the “minimum sustainable level of consumption” mean? Would individuals be content with consuming only this minimum level of consumption? Explain.
2. Can this society produce the minimum necessary to survive? Explain how.
3. If everyone fishes, how many can they catch? What would be the problem here?
4. If everyone harvests potatoes, how much can they produce? What would be the problem here?
5. If this society produces the minimum amount of fish necessary, how many pounds of potatoes can they harvest with the rest of their resources?
6. If this society produces the minimum amount of potatoes necessary, how many fish can they catch with the rest of their resources?
7. Draw a graphical representation of the tradeoff between the
(total) production of potatoes and fish that this society faces.
7a. What do you note about how this graph looks?
7b. Can you identify an equation for this line?
7c. What is the slope of this line? What does it mean?
*****************************************************************
Something to think about: How do you think potatoes and fish are distributed in Hosk? What happens if someone is sick? What if they just decided to skip work? What kind of allocation system do you think will work best here?
Economics
Dr. D. Foster
Production Possibilities, Scarcity, Choice & Gains to Trade – Group Assignment
Hosk (con’t.)
7d. What does it cost these people when they:
(i)want to catch one more fish?
(ii)harvest one more pound of potatoes?
8. If the people of Hosk like to consume potatoes and fish in a 1:1 ratio (that is, one lb. potatoes with 1 fish, or 2 lbs. with 2 fish, etc.), what would be the “best” production mix? Fractional values are OK. [Solve algebraically, intuitively, or through trial and error.] What is the “standard of living” on Hosk, stated in terms of potatoes and fish?
9. If a politician promises that, under his leadership, Hosk’s standard of living can be 2 pounds of potatoes and 2 fish per person (per day), do you vote for him/her? Explain.
10. What do you note about the relationship between what can be produced and what can be consumed in this example?
Wait to answer the next set of questions
11. OK, things have changed a bit. You find that there is a nearby island, Avalon, that has a similarly sized population, with whom you may trade.
- Talk with them.
- Find out what they want and what they are willing to give in exchange.
- See if you can’t come to some trade arrangement that will raise your standard of living.
11a. What is your new production mix?
11b. What do you trade away (and how much)?
11c. How much do you get for what you trade away?
11d. What is your new standard of living?
11e. What do you now note about the relationship between what can be produced and what can be consumed?