ECON 272
In Class Exercise Three
1. You and a few other people have been stranded on an island and must set up your new society (economy). Your economy is up and running now so draw your production possibilities frontier (choose what you put on the axes).
a. Label a point A on your graph that demonstrates a point that is impossible to attain at this time (given the assumptions of the model).
b. With respect to the model - discuss the concept of marginal opportunity cost. How does scarcity relate to opportunity cost?
c. Demonstrate on your graph, by producing more of one good, that there is a marginal opportunity cost in terms of the other.
d. Then explain why you would produce more of one good over another. Relate this to the concept of efficiency (and how are you defining wealth)?
e. What costs are involved with your production that you should take into consideration if you want to be efficient?
f. How might you change your rules in order to shift out the frontier? Explain your answer and think about your definitions of wealth and efficiency.
2. What questions do you still have about this material?