Exam 2: The Economic Problem

Sarah and her boyfriend Mike want to save some money to pay for their wedding. So they decided to help people in the neighborhood by cleaning their garages and mowing lawns. Sarah takes 60 minutes to clean a garage and 80 minutes to mow a lawn. Mike takes 80 minutes to clean a garage and 80 minutes to mow a lawn. Sarah and Mike devote 10 hours per week each to these activities and get paid $25 for each garage they clean an $25 for each lawn they mow. Sarah says to Mike: "I have an absolute advantage in cleaning and we are equally productive in mowing. Therefore I should do both cleaning and mowing but you should only mow lawns." Mike disagrees. He thinks Sarah should specialize in cleaning garages and he should specialize in mowing lawns. Hel and Mike to resolve their dispute. a) Who has an absolute advantage in cleaning garages? In mowing lawns? Explain. b) Draw Sarah's and Mike's production possibilities frontiers. What are each individual's opportunity costs? c) Who has a comparative advantage in cleaning garages? In mowing lawns? Explain. d) Is Sarah right when she says that she should do both cleaning and mowing while Mike should only mow law may be Mike is right when he suggests that Sarah specializes in cleaning and he specializes in mowing? Illustrat and substantiate your answer with a numerical example.

In one day, Brandon can either plow 10 acres or plant 20 acres. In one day, Christopher can either plow 14 acres or plant 14 acres. Which of the following statements about comparative advantage is correct?

In general, the more resources that are devoted to technological research, the

Suppose that in an hour Joe can prepare 10 sandwiches or 5 pizzas. The opportunity cost of Joe producing one sandwich is

-In the above figure, if 2 million computers are produced per year then the should be produced to achieve the allocatively efficient use of resources

"If Mexico is currently operating at a point beyond its production possibilities frontier, then there are unemployed resources in Mexico." Is this statement true or false? Briefly explain your answer.

To obtain the gains available from comparative advantage, individuals or countries must do more than specialize; they must also

When an economy produces at its allocatively efficient production point,

Both Mergatroid and the Geebocks produce only gizmos and widgets. It is possible for Mergatroid to have

Country X and Country Y are both efficient in production. Country X devotes one third of its resources to accumulating capital and the other three fourth to consumption. Country Y devotes one fourth of its resources to accumulating capital and two thirds to consumption. Which country will grow faster? In which country the opportunity cost of economic growth is higher? Explain.

Markets

When the production possibilities frontier bows outward from the origin,

In the United States, Texas ranks number one in the amount of installed megawatts for wind power generation and Florida ranks number one in the number of beach vacations. These facts point out that

-The figure above illustrates that if this country wishes to have F₂ - F₁ additional food by moving from point A to point B, it will

Increasing opportunity cost while moving along a production possibilities frontier is the result of

The social arrangement that gives John Grisham, the writer of best- selling novels, the ownership of his novels is

-The above table shows production combinations on a country's production possibilities frontier. Which of the following points signifies efficient production?

-Refer to the table above, which gives five points a nation's PPF. What does point c mean?

Moving along a bowed- out PPF between milk and cotton, as more milk is produced the marginal cost of an additional gallon of milk

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that