LESSON 2 AND 1

A fundamental aspect of economics is to

analyze how choices are made

You own The Wedding Crasher on DVD. The opportunity cost of watching this DVD for the fourth time

is the value of the alternative use of the time you spend watching the DVD.

The combined PPF for Nebraska and Virginia is shown in the picture above. What is the slope of the PPF between points Y and Z?

- (9/7

The combined PPF for Nebraska and Virginia is shown in the picture above. What is the slope of the PPF between points Z and X?

-(5/2)

Refer to Table 1. Suppose the country is producing 50 units of consumer goods. What is the opportunity cost of producing an additional 10 units of consumer goods? Table 1 Capital Goods Consumer Goods 60 0 58 10 54 20 48 30 40 40 30 50 18 60 0 70

12 units of Capital goods (The country would have to reduce its production of capital goods from 30 to 18. So they would give up 12 units of capital goods.)

Consider the equation Y = 14 - 2X. With Y on the vertical axis and X on the horizontal axis, the vertical intercept of this line

14

The picture depicts a graph with wheat on the y-axis and cotton on the x-axis. A downward sloping line is drawn starting from the y-axis, starting from point Y. It continues at a constant slope until point z, where it begins to slope downward even steeper. It continues down until it meets the x-axis at point X The combined PPF for Nebraska and Virginia is shown in the picture above. What is the value of vertical intercept, Y?

1400

Assume Oklahoma and South Dakota each have 100 acres of farmland. The following table gives hypothetical figures for yield per acre in the two states: Suppose the two states decide that they want to produce 600 total units of wheat. What is the maximum amount of corn that they could produce? South Dakota Oklahoma Wheat 5 2 Corn 6 3

150 units of corn (South Dakota has the comparative advantage in the production of wheat, so they should produce wheat. South Dakota can only produce 500 units of wheat. In order to get 600 total units of wheat, Oklahoma would have to produce the other 100 units of wheat. This would leave them 50 acres of land that they could use to produce corn, so they could produce 150 units of corn.)

Draw the PPF for Virginia, putting wheat on the vertical axis and cotton on the horizontal axis. What is the horizontal intercept of Virginia's PPF?

200

Consider the following table which shows the yield per acre of cotton and wheat in two countries, USA and Mexico: In Mexico, the opportunity cost of producing 3 units of cotton is YIELD PER ACRE USA Mexico Cotton 10 6 Wheat 30 10

5 units of wheat. (Mexico would have to use ½ of an acre of land to produce 3 units of cotton. Had they chosen to use that land for the production of wheat, they could have produced 5 units of wheat.)

Draw the PPF for Virginia, putting wheat on the vertical axis and cotton on the horizontal axis. What is the vertical intercept of Virginia's PPF?

500

The combined PPF for Nebraska and Virginia is shown in the picture above. What is the amount of wheat being produced at point Z?

500

Mark can produce 20 baseballs in a month and Katie can produce 25 baseballs in a month. Also, Mark can produce 10 bats in a month and Katie can produce 15 bats in a month. What is Mark's opportunity cost of producing 30 bats?

60 baseballs (It would take Mark 3 months to produce 30 bats. In that time, Mark could have produced 60 baseballs.)

Suppose the two states decide that they want to produce 590 units of wheat together (not 590 units of wheat each). What is the maximum amount of cotton that they could produce?

630 units of cotton

Consider the equation Y = 14 - 2X. With Y on the vertical axis and X on the horizontal axis, the horizontal intercept of this line is

7

Draw the PPF for Nebraska, putting wheat on the vertical axis and cotton on the horizontal axis. What is the horizontal intercept of Nebraska's PPF?

700

The combined PPF for Nebraska and Virginia is shown in the picture above. What is the amount of cotton being produced at point Z? Correct!

700

If your tuition is $2,000 this semester, your books cost $400, you can only work 10 rather than 40 hours per week during the 15 weeks you are taking classes and you make $12 per hour, and your room and board is $4,000 this semester (same as if not attending college), then your opportunity cost of attending college this semester is Correct!

7800

Draw the PPF for Nebraska, putting wheat on the vertical axis and cotton on the horizontal axis. What is the vertical intercept of Nebraska's PPF?

900

The combined PPF for Nebraska and Virginia is shown in the picture above. What is the value of horizontal intercept, X?

900

Professor's economics students are constructing models for how gasoline prices change. Maria's model has very realistic assumptions and is quite complex. Anna's model is less complicated and less realistic. Maria's model correctly predicts gas price increases 5% of the time. Anna's model predicts correctly 15% of the time. On the basis of usefulness or "goodness," Professor will give which student's model the higher grade and why? Correct!

Anna's model gets the higher grade because it predicts accurately more often

Which of the following illustrates the fallacy of composition?

Barbara likes chocolate, so all women must like chocolate

Which of the following statements is TRUE about scarcity?

Both rich and poor people face the problem of scarcity.

Mark can produce 6 guitars in a month and Katie can produce 5 guitars in a month. Also, Mark can produce 8 banjos in a month and Katie can produce 2 banjos in a month. What is Katie's opportunity cost of producing 30 guitars?

It would take Katie 6 months to produce 30 guitars. In that time, Katie could have produced 12 banjos.

Mark can produce 20 baseballs in a month and Katie can produce 25 baseballs in a month. Also, Mark can produce 10 bats in a month and Katie can produce 15 bats in a month. ______________has the absolute advantage in the production of bats, and _____________ has the comparative advantage in the production of bats.

Katie; Katie (Katie can produce more bats in a month than Mark can, so Katie has the absolute advantage in the production of bats. Also, Katie's opportunity cost of producing a given number of bats is lower than Mark's, so Katie has the comparative advantage in the production of bats.)

Macroeconomics is best defined by which of the following statements?

Macroeconomics is the study of the behavior of the economy as a whole

Consider the following table which shows the yield per acre of cotton and wheat in two countries, USA and Mexico: _____________ has the absolute advantage in the production of wheat, and __________ has the comparative advantage in the production of wheat. YIELD PER ACRE USA Mexico Cotton 10 12 Wheat 30 40

Mexico; Mexico. (Mexico can produce a given amount of wheat using fewer resources than USA, and Mexico can produce a given amount of wheat at a lower opportunity cost than USA.)

Assume Nebraska and Virginia each have 100 acres of farmland. The following table gives hypothetical figures for yield per acre in the two states Nebraska Virginia Wheat 9 5 Cotton 7 2

Nebraska

Who has the absolute advantage in the production of cotton?

Nebraska

Who has the comparative advantage in the production of cotton?

Nebraska

Which of the following best describes sunk costs?

Previous costs that once made are non-recoverable

Assume Oklahoma and South Dakota each have 100 acres of farmland. The following table gives hypothetical figures for yield per acre in the two states: What is the marginal rate of transformation between wheat and corn in South Dakota? South Dakota Oklahoma Wheat 6 8 Corn 12 12

South Dakota gives up 1/2 of a unit of wheat for every unit of corn it produces, so the MRT is -1/2.

Who has the comparative advantage in the production of wheat?

Virginia

"All Americans should have access to health care" is an example of

a normative statement.

Macroeconomics is the study of

aggregate economic variables.

Which of the following is an example of an negative relationship?

beers consumed while studying and test grade

Ceteris paribus means

economists isolate one or two factors that change when analyzing human decisions.

Positive statements can contain

facts and predictions.

Refer to Figure 1. At point A, the opportunity cost of producing consumer goods is _________ it is at point C. The picture depicts a graph with Capital Goods on the y-axis and Consumer Goods on the x-axis. A curve is drawn from the y-axis in a concave curve downward to the x-axis. There are four points marked out, A through D. A is sitting on the curve, but at a point much further along the y-axis than on the x-axis. B is sitting roughly equally in relation to x and y, but is below the curve. C is sitting equally relative to x and y, but is sitting on the curve. D is equally to x and y as well, but is sitting far beyond the curve

less than (As we move down a production possibilities curve, the opportunity cost of producing the good on the horizontal axis increases, and the opportunity cost of producing the good on the vertical axis decreases.)

In a negative relationship,

one variable rises while the other falls.

In economics, ________ are limited but ________ are unlimited.

resources; wants

Economics is the study of

scarce resources and unlimited wan

An increase in a country's technology would most likely

shift its production possibilities curve to the right (The two things that would shift a country's PPC to the right are an increase in resources and an increase in technology.)

The macroeconomist would most likely study

the effects of a lower income tax rates on the nation's total production of goods and services

Scarcity refers to the inability of society to satisfy

the inability of society to satisfy all human wants because of limited resources.

If you own a condo and you decide to lease it to your cousin,

there IS an opportunity cost of leasing the condo because you could have chosen to live in it.