Principles of Macroeconomics HW 1

What is Mary's opportunity cost of one cookie?

0.5 muffin

Consider the production possibilities table for an economy that produces only mobile phones and pizzas. What is the opportunity cost of increasing production of mobile phones from 200 to 500?

2,000 pizzas

Indonesia's opportunity cost of producing bananas is

2.5 units of rice. This is higher than India's opportunity cost of producing bananas.

Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of one sofa is

2/3 of a car

Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is

24 units of cheese and 15 units of wine

If the production possibilities frontier shown is for 24 hours of production, then how long does it take Brazil to make one pound of peanuts?

3 hours

If the production possibilities frontier shown is for two months of production, then which of the following combinations of peanuts and cashews could Brazil produce in two months?

3 pounds of peanuts and 150 pounds of cashew

What is the opportunity cost of increasing the production of corn from 400 bushels to 800 bushels?

400 bushels of wheat

If this economy devotes all of its resources to the production of dryers, then it will produce

80 dryers and 0 washers

Efficiency means everyone in the economy should receive an equal share of the goods and services produced

False

If one producer is able to produce a good at a lower opportunity cost than some other producer, then the producer with the lower opportunity cost is said to have an absolute advantage in the production of that good.

False

Trade can make everyone better off except in the case where one person is better at doing everything.

False

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price would fall, and the effect on quantity would be ambiguous.

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?

Quantity will fall, and the effect on price is ambiguous.

Which of the following events would explain the shift of the production possibilities frontier from A to B?

The economy experienced a technological advance in the production of books.

If the four suppliers listed are the only suppliers in this market and the market quantity demanded is 300 cases when the price is $3.00, which of the following statements is correct?

The market is in equilibrium at a price of $3.00.

An individual deciding how to allocate their limited time is dealing with both scarcity and trade-offs.

True

Market failure refers to a situation in which the market does not allocate resources efficiently.

True

Opportunity cost measures the trade-off between two goods that each producer faces.

True

Specialization and trade can make everyone better off if a person can obtain goods at prices that are less than that person's opportunity cost.

True

The shift from Db to Da in the market for potato chips could be caused by

a decrease in income, assuming that potato chips are a normal good.

If a surplus exists in a market, then we know that the actual price is

above the equilibrium price, and quantity supplied is greater than quantity demanded.

The movement from point A to point B on the graph shows

an increase in quantity demanded.

A likely example of complementary goods for most people would be

chips and salsa

A decrease in the price of a good will

decrease quantity supplied.

Equilibrium price must decrease when demand

decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

Pizza is a normal good if the demand

for pizza rises when income rises.

The shift from S to S' could be caused by an

improvement in production technology.

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price.

Is the following a positive or normative statement? The United States government should mandate that every citizen purchases health insurance.

normative

Suppose that you plan your activities for a hot summer day. You would like to go to the local swimming pool and see the latest blockbuster movie. However, the only available ticket is for the same time that the pool is open. So you can only choose one activity. This illustrates the basic principle that

people face tradeoffs.

Efficiency

refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.

An improvement in production technology will shift the

supply curve to the right.

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

the nation is not using all available resources or is using inferior technology or both.

Consider the production possibilities frontier for an economy that produces only sofas and cars. When society moves from point A to point B,

the opportunity cost is the same as when society moves from point B to point C.

Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. What is the opportunity cost of moving from point T to point R?

zero