Question

Question 1 Suppose a British Columbia has a total of 12 units of labour, which can be used to produce either computer or wheat. One computer takes 6 units of labour to produce and 100 kg wheat takes 2 units of labour to produce. (a) Explain why scarcity exists in this economy. Use the data as evidence of your reasoning. (5) (b) What is the maximum quantity of computers that can be produced? (3) c) What is the maximum quantity of wheat than can be produced? (3) (d) Draw the BC's production possibility curve. (3) (e) What is the opportunity cost of computers in BC? (3) Explain why BC can't produce both 3 computers and 400 kg of wheat (3) (g) Explain why the BC shouldn't produce both 1 computer and 200 kg of wheat (3

Answer 1

Q1a)The nation has 12 units of labor which can be used to produce either computers that needs 6 units of labor to produce one computer ,or wheat which requires 2 units of labor to produce 100 kg of wheat .If 12 units of labor was used to produce computers , the nation would produce 12/6=2 computers .If all the labour was used to produce wheat it will be able to produce 12/2=600kg of wheat but the nation will not be able to produce guns.

b) The maximum number of computers that can be produced is 12/6=2 computers.

c)The maximum quantity of wheat that can be produced is 12/2=600 kgs of wheat.

d) The production possibility curve can be drawn where the vertcal axis represent computers and the horizontal axis represent wheat.The PPC is the line from 0,12 to 600,0.

e)As resources are limited in this nation there is a limit on the computers and wheat that can be produced .Beyond the PPC,it is not possible to produce. because of limited resources.The slope of the PPC shows the trade off that is made between computer and wheat produced. If the nation produces one more computer , it will have to give up 300kg of wheat . This is the opportunity cost .

f)The economy can produce combinations of computers and guns inside the PPC but beyond that it cannot produce with 12 units of labor.It cannot produce 3 computers and 400 kgs of wheat because it will require more labor for that amount.

g)The nation should not produce 1 computer and 200kgs of wheat because that would mean waste of resources.This will leave 2 units of labor unemployed This is produtive inefficiency

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