Homework quiz #1 on Ch

10. In economics, capital refers to

a. the finances necessary for firms to produce their products.

b. buildings and machines used in the production process.

c. the money households use to purchase firms' output.

d. goods, but not to services.

11. The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that cattle and horses can step in and they eat grass necessary for cattle. Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In some areas prairie dogs can sell for as high as $150. Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle.

Draw a production possibilities frontier showing a rancher's production option between cattle production and prairie dog production showing increasing opportunity cost and show what would happen in each of the following situations. (Use a separate graph for each situation.)

a. The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and prairie dogs.

b. As a protest against the government introducing the gray wolf back into the wild in their state, ranchers decide to withhold 25 percent of the available grassland for grazing.

c. The price of prairie dogs increases to $200 each, so ranchers decide to allot additional land for prairie dogs.

d. The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing.

e. A drought destroys most of the available grass for grazing of cattle, but not for prairie dogs since they also eat plant roots.