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Suppose you have a job that allows you to spend up to 40 hours per week at work.

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  • Post Date 2018-11-03T13:24:29+00:00
  • Post Category Case Study

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Suppose you have a job that allows you to spend up to 40 hours per week at work.

1. Suppose you have a job that allows you to spend up to 40 hours per week at work. If you work 40 hours per week, however, you have no time for studying but your standard of living is much higher. If you study for 40 hours per week, you have no time to go to work but you receive much better grades. Draw a production possibilities frontier (PPF) that represents this situation. Use this curve to explain:

  • scarcity,
  • opportunity cost,
  • efficient,
  • inefficient and unattainable points,
  • the trade-off between standard of living and grades, and
  • Clearly explain all assumptions you made in order to construct the PPF.  

2. Suppose that the market for Australian red wine is in equilibrium. Explain how the situation would be affected if medical research discovered that drinking red wine regularly significantly lowered the risk of developing heart disease. How might the situation change again if new technology reduced the cost of producing Australian wine?

3. Suppose your neighbours across the street want you to help them tend the flower garden in the front of their house.

  • Why is the flower garden and externality to you?
  • What does this mean about quantity of flowers will be planted in the neighbourhood?
  • If you are planning to sell your house soon, will you be more or less likely to help neighbours? Why?

 

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