ECO10250 Economics for Decision Making - Assessment 1 Session 2

Question 1

a. The following is a set of hypothetical production possibilities for a nation.

1. Plot the production possibility for the nation.
2. What is the opportunity cost of the first 100 computers produced?
3. What would be happening if this nation is only producing combinations of 200 computers and 300 cars?
4. Show what would happen to the production possibility frontier if this nation introduced an improved new technology that allowed it to double its production of cars. The productivity of computers is unchanged.
5. Explain how the production possibilities frontier reflects the law of increasing opportunity costs.

Parts i to v are worth 1 mark each.

b. Suppose that a Council is considering lowering the fees charged for parking in the CBD but not near the Council’s beaches for two reasons: a) to substantially raise its revenue from parking fees in the popular CBD area; and b) to discourage people from using the limited amount of parking near the Council beaches. Are these two objectives mutually consistent? Explain why or why not. Describe any assumptions you may need to make in order to answer this question.
(5 marks)

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