In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli.
In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli.
By themselves, the Tivoli each month can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti, or any combination in between. The Frivoli, by themselves, each month can produce 40 pounds of spaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti, or any combination in between.
a. Assume that all production possibility frontiers are straight lines. Draw one diagram showing the monthly production possibility frontier for the Tivoli and another showing the monthly production possibility frontier for the Frivoli. Show how you calculated them.
b. Which tribe has the comparative advantage in spaghetti production? In meatball production?
In A.D. 100 the Frivoli discover a new technique for making meatballs that doubles the quantity of meatballs they can produce each month.
c. Draw the new monthly production possibility frontier for the Frivoli.
d. After the innovation, which tribe now has an absolute advantage in producing meatballs? In producing spaghetti? Which has the comparative advantage in meatball production? In spaghetti production?
12. Are the following statements true or false? Explain your answers.
a. “When people must pay higher taxes on their wage earnings, it reduces their incentive to work” is a positive statement.
b. “We should lower taxes to encourage more work” is a positive statement.
c. Economics cannot always be used to completely decide what society ought to do.
d. “The system of public education in this country generates greater benefits to society than the cost of running the system” is a normative statement.
e. All disagreements among economists are generated by the media.
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