Describe the differences between tradeoffs and free lunches in ...

[hbsimmons88]

Describe the differences between tradeoffs and free lunches in terms of a PPF.
 
  What will be an ideal response?

Question 2

If expectations about future income change, there is
 
  A) a decrease saving if people expect income to decrease in the future.
  B) a decrease in saving if people expect income to increase in the future.
  C) an increase in saving if people expect income to increase in the future.
  D) no change in saving until income actually changes.
  E) a change in the quantity of loanable funds supplied and a movement along the supply of loanable funds curve.

[frankwu0507]

Answer to Question 1

A tradeoff is a constraint or limit that forces giving up one thing in exchange for something else. When resources are fully employed, a country operates on its PPF. Any movement from one point to another point along the PPF requires the country to make a tradeoff between the two goods because one good is given up to get some other good. A free lunch occurs when some resources are not being used or not being used in their most productive way. When a country operates inside its PPF and moves toward its PPF choosing a different combination of goods, the country enjoys a free lunch. It does not face a tradeoff.

Answer to Question 2

B