Department of Economics Spring 2013 University of California - Berkeley Economics 1 Professor Moretti Katherine Murtha

Head GSI

Section Exercise 1
for 1/23/13 & 1/24/13 Suggested Solutions Arjun, TJ, and Wen are roommates in college. Theyve ignored their chores for a while and let the apartment deteriorate, so when Wens mum calls to say she is coming to visit them tomorrow, they drop everything else and take action ASAP. There are 2 tasks: cleaning rooms and doing the laundry. They each have the same amount of time today. If Arjun spends all of today doing chores, he can finish 2 batches of laundry, or clean 2 rooms. TJ can finish 2 batches of laundry or clean 4 rooms. Wen can finish 4 batches of laundry or clean 2 rooms. (One batch includes folding, and Wen happens to be very fast at folding clothes) a. Calculate how much of each chore is produced under the following circumstances, which we label I, II, III, and IV. I: All three spend all their time doing laundry II: All three spend all their free time cleaning III: All three spend half their time on each chore IV: Arjun spends half his time on each chore, TJ only cleans, and Wen only does laundry. Max # of batches of laundry done (if
spend all time on laundry)

Max # of rooms cleaned (if spend all

time cleaning)

Opportunity Cost of Cleaning (in

words)

Opportunity cost of cleaning in terms of batches of laundry (number)

Order to plot points

(from lowest to highest OC)

Arjun TJ Wen

2 2 4

2 4 2

Give up 1 meal for 1 room Give up 1 meal for 2 rooms Give up 2 batches of laundry for one room

1 .5 2

2nd 1st 3rd

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Department of Economics Spring 2013 University of California - Berkeley Economics 1 Professor Moretti Katherine Murtha

Head GSI

Total

I: Batches of laundry 2+2+4=8, Rooms=0 II: Batches of laundry=0, Rooms 2+4+2=8 III: Batches of laundry 1+1+2=4, Rooms 1+2+1=4 IV: Batches of laundry 1+0+4=5, Rooms 1+4+0=5 b. graph the production possibilities frontier for this household economy. Using your answers to part (a) identify the points I-IV on your graph. In order to graph the PPF start by putting the three people in order from lowest opportunity cost to greatest. Mark the two end points of the graph. Then starting at one endpoint (lets say rooms), take the person who can give up the least rooms cleaned in order to do one more meal. Subtract the amount of rooms that person can clean, and add the number of batches of laundry they make. Then use the numbers of clean rooms and batches of laundry the person with the next smallest opportunity cost can make.

c. explain why the production possibilities frontier has the shape it does. Because they only have so much free time in a day, time is a scarce resource. You cannot spend all your time on doing AND all your time on cleaning. Thats why the PPF slopes down. It is curved because as you travel from no rooms cleaned to

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Department of Economics Spring 2013 University of California - Berkeley Economics 1 Professor Moretti Katherine Murtha

Head GSI

more rooms cleaned, the more rooms you clean, the more batches of laundry you have to give up. When you start allocating peoples time to cleaning, you pick the person who dos most efficiently first. The person who gives up the least doing to clean (TJ). The last person you allocate to cleaning is the person who is the slowest at it. d. Are any of the allocations of time (I-IV) inefficient? Explain. Yes point III is inefficient because it is inside the PPF.

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