Show:
Introduction
PPFs
Comparative Advantage
Demand
Supply
100
Economics is the study of how people make ______ to deal with __________.
choices; scarcity
100
All points inside the PPF are:
Feasible but inefficient
100
Define comparative advantage.
Someone has CA in something if they can do it at a lower OC than the other.
100
The price of apples is $1 and I am willing to buy 12 apples but can only afford to buy 6 apples. What is the quantity demanded of apples?
6
100
Name one thing that will increase the supply of apple juice in Washington.
Price of apples or other inputs fall, technological improvement, etc.
200
I can either buy apples or oranges. The opportunity cost of buying 1 apple is 1/2 an orange. If the price of an apple is $10 what is the price of an orange?
$20
200
You draw a PPF with apples on the x-axis and oranges on the y-axis. The slope of the PPF is -1/2. What is the opportunity cost of 1 orange?
2 apples
200
Tom can either make 100 chairs or 400 tables in a day while Jerry can either make 200 chairs or 500 tables in a day. What is the OC of making chairs for both Tom and Jerry? Who has Comparative Advantage in chairs?
OC of 1 chair = 4 tables for Tom and 5/2 tables for Jerry. Since 5/2 is less than 4 Jerry has CA in chairs.
200
What is the difference in an increase in quantity demanded and an increase in demand?
An increase in quantity demanded is a result of the price of the good falling and is shown as a movement along the demand curve. An increase in demand is the result of some other factor changing (ex. income, price of substitutes or complements) and is shown as a shift in the demand curve
200
If the price of cheese increases what happens in the market for Cheeseburgers?
Supply falls.
300
I am deciding whether to spend one more hour sleeping. These are my alternatives (and how much I value them): Work ($50), Yoga ($20), Read the newspaper ($30), Eat breakfast ($40), Watch TV ($55). What is my opportunity cost of one extra hour of sleep?
$55 (value of my next best alternative)
300
If a PPF is linear (i.e. it has a constant slope) what does it mean in terms of opportunity cost?
It means that the OC of producing 1 more unit of a good is always the same no matter how much we are producing
300
Tom can either make 100 chairs or 400 tables in a day while Jerry can either make 200 chairs or 500 tables in a day. If they trade based on comparative advantage, what should be the terms of trade?
1 chair = anywhere between 5/2 and 4 tables
300
If the price of advil falls what happens to the demand for tylenol? How will the demand curve shift?
Demand for tylenol will decrease and the demand curve will shift left.
300
Name one thing that will decrease the quantity supplied of ketchup
The price of ketchup decreases
400
A rational person thinks at the margin. Explain What we mean by "thinking at the margin."
A rational person should choose to do something as long as the marginal (extra) benefits of doing it are greater than the marginal (extra) costs of doing it.
400
What does it mean to have a bowed out PPF?
A bowed out PPF means that the OC of a good increases as we produce more of it.
400
Tom can either make 100 chairs or 400 tables in a day while Jerry can either make 200 chairs or 500 tables in a day. What would happen if the terms of trade was 1 chair = 5 tables?
Tom would refuse to trade as Tom's OC of making chairs on his own is 4 tables so he would refuse to pay Jerry anything more than 4 tables per chair.
400
If people's incomes increase what happens to the demand for Spam (an inferior good)?
Demand for Spam will decrease (shift left)
400
What happens to the supply of a good if its price is expected to increase in the future?
The supply will decrease now.
500
Tom is planning on selling a car. He discovers that he needs to do an additional $2000 of work to make the car worth $5000 to potential buyers. He could also sell the car now, without completing the additional work, for $3300. What should he do?
He should NOT repair the car as the MC of repairing it ($2000) is higher than the MB of repairing it ($1700)
500
Why are some PPFs bowed out while others are linear?
PPFs are bowed out when inputs are not equally adaptable to the production of both goods. PPFs are linear when inputs are equally adaptable in the production of both goods.
500
Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is
14/5 bushels of corn or 2.8 bushels of corn
500
If the price of rubber falls how will that affect the demand for rubber tires?
The demand for rubber tyres will not be affected. Supply will be affected.
500
The law of supply says that as the price of a good goes up....
....the quantity supplied of that good also goes up, ceteris paribus.