Exam 2: The Economic Problem

-The above figure illustrates that if this country wishes to move from its current production point (labeled "Current") and have 10 more tons of food, it can do this by producing

-Omar and John can fix computers or write computer programs. The table above shows the number of computers they can fix and the lines of code they can write in a day. a) Who, if anyone, has the absolute advantage? b) Who has the comparative advantage in fixing computers? Why? c) Who has the comparative advantage in writing programs? Why?

-Two countries, Alpha and Beta, have identical production possibilities frontiers illustrated above. If Alpha produces at point a and Beta produces at point b, then

We measure the marginal ________ of a good by what a ________ for another unit of the good.

The production possibilities frontier shifts as

Individual economic decisions are coordinated by

-The Hobbits of the Shire are trying to decide how much bread and how much wine to produce. They ask you to be their economic consultant and give you the information in the first table above about different combinations of wine and bread that they can produce if they are fully employed and doing their best. The Hobbits also give you the information in the second table above about their willingness to pay for wine depending on how much wine they already have. To help the Hobbits solve their problem: a) Draw the Shire's production possibilities frontier. Put wine on the horizontal axis. b) What is the opportunity cost of the first two thousand bottles of wine? What is the marginal cost of the 3000th bottle of wine? What is the marginal cost of the 3,000th loaf of bread? c) Draw the marginal cost of wine curve. What happens to the marginal cost if production of wine increases? Why? d) Draw the marginal benefit from wine curve on the same figure on which you put the marginal cost curve. Describe the relationship between the quantity of wine produced and the marginal benefit from wine. e) What combination of bread and wine will you recommend the Hobbits to produce? Why? Explain to the Hobbits why they would be worse off by producing a different combination of bread and wine.

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Both individuals will be better off if

When a nation is producing the allocatively efficient quantity of a product, the marginal benefit of producing the good equals the marginal cost of producing that good.

Are all points inside the production possibilities frontier unattainable?

-The above table shows production points on Sweet-Tooth Land's production possibilities frontier. Which of the following is an example of a point that is inefficient?

-The table above presents the production possibilities of Farmer Brown. Use these data to calculate Farmer Brown's opportunity cost of additional beef as Farmer Brown moves from point A to B to C to D. Also use the data to calculate Farmer Brown's opportunity cost of additional wheat as Farmer Brown moves from point D to C to B to A. Based on these costs, does Farmer Brown use resources that are more productive in one activity than the other? Explain your answer.

Country A can produce 1 cello by giving up the production of 5 guitars. Country B can produce 1 guitar by giving up the production of 4 cellos. In which good does country A have a comparative advantage?

The principle of decreasing marginal benefit implies that the

-In the above figure, at point b what is the opportunity cost of producing 2 more audio tapes?

Points outside the production possibilities frontier illustrate production points that cannot be attained.

Two social institutions that are essential for trade to be organized are

Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. Which of the following statements is TRUE?

The marginal benefit of a good or service

When an economy produces at its allocatively efficient production point