Chapter 2: Q.15 (page 44)
What is productive efficiency? Allocative
efficiency?
Productive efficiency is the resources able to utilize and the technology.
Allocative efficiency indicates a selected blend of goods that society creates
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Could a nation be producing in a way that is allocatively efficient, but productively inefficient?
Explain why individuals make choices that are directly on the budget constraint, rather than inside the budget constraint or outside it.
What assumptions about the economy must be true for the invisible hand to work? To what extent are those assumptions valid in the real world?
Use this information to answer the following 4 questions: Marie has a weekly budget of \(24, which she likes to spend on magazines and pies. If the price of a pie is \)12, what is the maximum number of pies she could buy in a week?
Suppose Alphonso’s town raised the price of bus tickets to \(1 per trip (while the price of burgers stayed at \)2 and
his budget remained $10 per week.) Draw Alphonso’s new budget constraint. What happens to the opportunity cost
of bus tickets?
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