Question

In: Economics

(0, 5 or 10) The following is a production possibilities schedule for prisons and public education....

  1. (0, 5 or 10) The following is a production possibilities schedule for prisons and public education.

               Alternative                       Prisons             Public Education          

                       A                                 160                               0

                       B                                  120                             20

                       C                                   80                             40

                       D                                   40                             60

                       E                                     0                             80

   Graph the production possibilities curve (You do not have to submit the graph). Then answer the following questions:

a. What is the opportunity cost of the first 20 units of public education?

b. What is the opportunity cost of the last 20 units (from 60 to 80) of education?

c. Why cannot the economy produce 60 units of education and 80 units of prisons?

  1. (0, 5, or 10)

a) Who benefits from rent ceilings?

b) Who suffers as a result of rent ceilings?

c) What are the long-term effects of rent ceilings?

  1. (0, 5, or 10)

a) How can landlords cheat on rent ceilings?

b) How can tenants cheat on rent ceilings?

c) Do you think the rent ceilings might lead to more discrimination against certain groups?

Solutions

Expert Solution

Sol 1 :

Production Possibilities Frontier means the representation of possible combination of two goods that can be produced with the given resources.

(a) Opportunity cost is the cost of loss of alternative .

Opportunity cost of first 20 (I.e 0 - 20) units of public education is =

Opportunity cost of 40 units of education = 60 units of prison

Opportunity cost of 1 unit of education = 60/40 (prison)

Opportunity cost of 20 education = 1.5 x 20 = 30 units of prison

(b) opportunity cost of last 20 (60 - 80) units of education

Opportunity cost of 80 units of education = 40 units of prison

Opportunity cost of 1 education = 40/80

Opportunity cost of last 20 units = 0.5 x 20 = 10 units prison

(c) the economy cannot produce 60 units of education and 80 units of prison because as per the possible combination of education and prison , economy can produce only 80 units of prison with 0 units of education.

So , due to limited resources and scarcity of resources , economy can produce only limited resources.


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