Trade/Opp Cost
What is the difference between comparative and absolute advantage?
What causes a shift in the demand curve?
Income/Wealth, Preferences, Expected Future Income, Wealth.
What affects quantity supplied?
Change in supply price.
What is market equilibrium?
Market equilibriumis a market state where the supply in the market is equal to the demand in the market.
What types of goods increase demand as income increases?
Luxury Goods
For Bill, the opportunity cost of producing a knife is always 4 guns. For Beatrix, the opportunity cost of producing a knife is always 6 guns. Who has the comparative advantage for producing guns?
Beatrix with a lower opportunity cost of 1/6 knives
What affects the quantity demanded in the demand curve?
Price of a good/service.
What can shift the supply curve?
Technological advancement, input prices, natural conditions, government policies
In the market for a good, both the demand and the supply increase at the same time. What happens to equilibrium price and quantity?
Cannot tell what happens to the equilibrium price, but the equilibrium quantity must increase.
Why is specialization and trade more beneficial than allocating one's times and resources to producing one's own goods?
Because specialization has a comparative advantage in trade and allows traders to be better off than they would have been if they had put in their time and resources to producing their own goods.
In one hour, Frank can produce either 15 gallons of milk, or 3 gallons of juice. In one hour, Bailey can produce 2 gallons of milk or 4 gallons of juice. Assume that each person wants to consume 3 gallons of juice, then as much milk as they can. Determine what each person will end up consuming when they cannot trade.
Frank: 3 juice and 0 milk
Bailey: 3 juice and 1/2 milk
Why does the demand curve have a negative relationship with Price and Quantity?
As price of goods increases, the quantity that is demanded of that good decreases. (Consumers are less likely to pay for more goods that become more expensive.
Why is there a positive relationship between price and quantity in the supply curve?
As market price of a product increases, suppliers want to increase the quantity sold of that product. (Higher profits)
A market with standard shaped supply and demand curves has equilibrium at a price of $50 and a quantity of 8600. A price ceiling of $30 is imposed on this market. Will there be a shortage or surplus in the market?
There will be a shortage.
How difficult have these questions been today?
Easy AF
Moderately easy
Meh
Moderately challenging
Oh my gosh I'm going to die
When does a country/person gain from trade?
When they are able to gain more than they can produce of both goods on their PPF.
Whole Foods runs a contest where they go back through their past receipts and send all their customers who bought strawberries in the last week a check for $12,000. If this causes price to increase, are strawberries an inferior or normal good?
Normal Good
Suppliers must pay a tax of $6 per unit. The equilibrium quantity changes to 18 from 20 and the equilibrium price is now 62 instead of 20. Which of the following statements is true:
(a) Tax revenue will equal $108
(b) Price increases by $4
(c) Quantity decreases by 4 units
(d) Consumers pay $70
(e) Producers pay $36
Tax revenue will equal $108
In the market for a particular good, at a price of $24, the quantity demanded is 350 and the quantity supplied is 500. Which of the following is true?
I. At a price of $25, there is pressure for the price to fall
II. If the price of a substitute for this good decreased, the new equilibrium price would be less than $25
III. At a price of $28, quantity supplied – quantity demanded ≥ 150
All of them.
Suppose that Franks’s preferences are Cobb-Douglas:u(b, z) = b^αz^(1−α)
Is it possible that for some choice of α between 0 and 1, Frank’s demand for beer could be 4 bottles?. Explain why or why not.
No. This is not possible. Suppose that it were possible. Then Franks’s MRS just to the left of (4,4) would have to be greater than 2 beers per slice AND his MRS just to the right of (4, 4) would have to be less than 1.
Country A produces 900 units of wheat and 300 units of lumber. Country B produces 1000 units of wheat and 200 units of lumber. What is an acceptable term of trade for which both countries will gain from trade.
4 units of wheat for 1 unit of lumber. Any number between 3 and 5 per unit of lumber is an acceptable term of trade.
One curve shifting from a market where the equilibrium price was 10 and the equilibrium quantity was 5. Now the equilibrium price is 15 and the equilibrium quantity is 10. Which one of these are true?
I.This is currently a surplus at the old equilibrium price
II. The new equilibrium could have been cause by a substitute for this good decreasing in price
III. If the change was an increase in income, then the good is normal
Only III.
A dust storm has destroyed wheat crops making wheat more expensive. How does this affect the supply curve in the cereal market? (Quantity and Price?)
Quantity decreases and Price increases.
WIDGETS
P = 80 - Q (Demand)
P = 20 + 2Q (Supply)
Given the above demand and supply equations for widgets, find the equilibrium price and quantity.
Q = 20
P = 60
In 1 week, Rob can produce 25 gallons of milk or 5 gallons of juice. Ash can produce 12 gallons of milk or 4 gallons of juice. Assume both goods can be produced in continuous quantities.
Explain why Rob having 9 gallons of milk and 4 gallons of juice and Ash having 11 gallons of milk and 1 gallons of juice is not possible without trade. Give the production of each person and the trade that makes this outcome possible.
Ash produces 0 milk and 4 juice.
Rob trades 11 milk for 3 juice.
Ash trades 3 juice for 11 milk.