Microeconomics: Economic Models: Trade-offs & Trade HW2

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny can each produce in 1 hour, respectively, if they devote all of their time and effort into making the good. Round all answers to two decimal places. Paulie: 3.00 cups of Ice Cream, 16.00 T-Shirts Vinny: 8.00 cups of Ice Cream, 13.00 T-Shirts 1. What is Paulie's opportunity cost of producing a cup of ice cream? Paulie's opportunity cost: _____ t-shirts 2. What is Vinny's opportunity cost of producing a t-shirt? Vinny's opportunity cost: _____ cups of ice cream 3. Paulie has a comparative advantage in _____ and Vinny has a comparative advantage in _____.

1. 5.33 2. 0.62 3. t-shirts, ice cream

Christine and Paul are deciding how to split their time between writing music and lyrics for their new album. Their PPFs for 72 h of work are shown. Christine and Paul have to write music for 8 songs and lyrics for 12 songs (4 songs already have music). When they are done, they can go to a private island and relax from all their hard work. It is possible that they will use more than 72 h. 1. Once they start writing lyrics and music, assuming their hired help packs for them and their plane is waiting outside their door, how many hours can they board the plane to their relaxing island getaway? 2. Christine will write music for _____ songs. 3. Paul will write music for _____ songs. 4. Christine will write lyrics for _____ songs. 5. Paul will write lyrics for _____ songs.

1. 96 2. 0 3. 8 4. 12 5. 0

Vincent and Jean are two cooks who work in a village. Each of them can either bake cakes or make pizzas. Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent cake bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. 1. Which cook has absolute advantage in baking cakes? 2. Which cook has the absolute advantage in making pizzas? 3. Which cook has the comparative advantage in baking cakes? 4. Which cook has the comparative advantage in making pizzas?

1. Jean 2. Jean 3. Vincent 4. Jean

The figures illustrate the production possibilities available to Kate and Sarah with eight hours of labor in their bakery. Answer the questions according to these figures. Kate: endpoints (0, 4) on the Bread (loaves) axis & (8, 0) on the Cake (units) axis Sarah: endpoints (0, 12) on the Bread (loaves) axis & (9, 0) on the Cake (units) axis 1. Kate has a comparative advantage in _____. 2. Sarah has a comparative advantage in _____.

1. cake 2. bread

The figures illustrate the production possibilities available to Kate and Sarah with eight hours of labor in their bakery. Answer the questions according to these figures. Kate: endpoints (0, 4) on the Bread (loaves) axis & (8, 0) on the Cake (units) axis Sarah: endpoints (0, 12) on the Bread (loaves) axis & (9, 0) on the Cake (units) axis 1. Kate has an absolute advantage in _____. 2. Sarah has an absolute advantage in _____.

1. neither good 2. both goods

Determine if the items represent an example of positive economics or normative economics. 1. The richest 1% of Americans should pay more taxes than the rest of the 99%. 2. A decrease in the supply of coconut will increase the price of German chocolate cake, a good which requires coconut shavings as a key ingredient. 3. As minimum wage increases, the prices of all goods and services also tends to increase. 4. Social welfare spending in Sweden occupies too large a portion of the national budget.

1. normative economics 2. positive economics 3. positive economics 4. normative economics

Assume England and Mali can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in England can produce 10 t of grain or 5 t of dates in a season. Each farmer in Mali can produce 10 t of grain or 25 t of dates. Please answer the four questions. 1. Which country has the absolute advantage in producing dates? 2. Which country has the absolute advantage in producing grain? 3. Which country has the comparative advantage in producing dates? 4. Which country has the comparative advantage in producing grain?

1. Mali 2. Neither 3. Mali 4. England

The accompanying graph contains the production possibilities frontier (PPF) for Rubberland. Rubberland only makes two products, rubber band balls and rubber hoses, and on a given day can produce according to the PPF in the graph. Point A on the PPF represents the combination of the two goods Rubberland currently produces. 1. When a new method of rubber processing is discovered, the productivity of all Rubberland's inputs increases. Please shift the PPF to show this change. 2. Assume that Rubberland does not make more rubber band balls than they originally made at point A but still maximize their productive capabilities. Move point A to their new production point. 3. How many more rubber hoses do they now produce per day than before?

1. PPF shifts to the right/upward: (0, 160), (90, 0) 2. Point A coordinates: (70, 80) 3. 20

A farmer produces both beans and corn on her farm. If she must give up 16 bushels of corn to be able to get 6 bushels of beans, then her opportunity cost of 1 bushel of beans is _____.

2.67 bushels of corn

Label each component of the circular flow diagram.

Markets for Goods and Services (top): money (out), goods + services (in) Markets for Factors of Production (bottom): money (out), factors (in)

When trading with more developed countries,

less developed countries have a comparative advantage in the production of some goods or services.

Classify the statements as true or false by dragging them into the appropriate box.

True: - Countries specialize in the production of goods for which they have a comparative advantage. - It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another. False: - Absolute advantage is the source of the potential gains from specialization and trade. - A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good. - The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone.

Classify each statement as true or false by dragging it into the corresponding category.

True: - When two countries choose to partake in international trade, it is a mutually beneficial activity for both countries. - Through specialization and trade, it is possible for a country to consume a combination of goods. False: - Wealthier countries always benefit more from international trade than poorer countries. - Countries trade for goods in which they do not have a comparative advantage, and therefore, would never trade with nations that have similar resource endowments.

Why is the shape of the production possibilities frontier (PPF) often curved instead of straight?

Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for.

The table presents information about the productivity of digital cameras and personal computers in the United States and Japan. The data are presented in units of output per hour of work. Use this information to answer the question. Japan: 6 digital cameras, 3 personal computers US: 8 digital cameras, 2 personal computers Japan as a(n) _____ advantage in producing _____.

absolute, personal computers

An economic transaction in which one party trades for a good or service for another good or services is called

barter

Suppose two economists are debating a tax reform bill. Both economists agree that the bill would increase the after-tax income of the top 5% of income earners; however, they disagree on whether the bill would improve the tax system. Which is the most plausible reason for why these economists disagree?

difference in values

In a competitive market, all of the choices along the production possibilities frontier display _____ efficiency, while the specific choice on the frontier that society picks is the one with _____ efficiency.

productive, allocative

Select the correct definition of the term "comparative advantage."

the ability to produce a good or service at a lower opportunity cost than another

Kate and Sarah own a bakery together. The two figures illustrate the production possibilities available to them if they work at their bakery 8 h a day. Answer the questions using these figures. Kate: endpoints (0, 4) on the Bread (loaves) axis & (8, 0) on the Cake (units) axis Sarah: endpoints (0, 12) on the Bread (loaves) axis & (9, 0) on the Cake (units) axis If Kate and Sarah both specialize in the good in which they have a comparative advantage, the _____.

total production of bread will be 12 loaves, and the total production of cake will be 8 units.