Economics Test Questions

a) What it is the opportunity cost of producing an additional bowling ball measured in terms of forgone bicycles in western Leisureland?

Western Leisureland can produce at max 100 bicycles or 400 bowling balls. If you create a graph to illustrate the production possibilities, with bikes on the vertical axis and bowling balls on the horizontal axis, we would see a linear "curve" to production.

The slope would be calculated as 100/400 = 0.25, meaning that we lose 1/4 bicycle for each new bowling ball we want to produce. Therefore the opportunity cost of a single bowling ball is 1/4 of a bicycle.

b) What is the opportunity cost of producing an additional bowling ball measured in terms of forgone bicycles in eastern Leisureland?

Eastern Leisureland can produce at max 400 bicycles or 100 bowling balls. If you create a graph to illustrate the production possibilities, with bikes on the vertical

That means each bowling ball would have $24 in labor cost added to the $25 in material and energy cost. The total cost to produce would be $49. If sold for $50 the profit is $1 per bowling ball.

Therefore Western Leisureland has a comparative advantage when producing bowling balls.

If each country devotes full production to bicycles, Western Leisureland would produce 100 bicycles for their $2400 labor expenditure. That means each bicycle would have $24 in labor cost added to the $25 material and energy cost. Total cost to produce would be $49. If sold for $50 the profit is $1 per bicycle.

In the same day Eastern Leisureland would produce 400 bicycles for their $2400 labor expenditure. That means each bicycle would have $6 in labor cost added to the $25 in material and energy cost. The total cost to produce would be $31. If sold for $50 the profit is $19 per bicycle.

Therefore Eastern Leisureland has a comparative advantage when producing