Liberty University ECON 213 Problem Set chapter 2 complete solutions correct answers updated

Liberty University ECON 213 Problem Set chapter 2 complete solutions correct answers updated

Suppose that a politician tells you about a plan to create two expensive but necessary programs for building more production facilities for wind power and increasing subsidies for health care. At the same time, the politician is unwilling to cut any other programs. Assume that all resources are already being used efficiently in other programs. The politician is trying to reach __________ on the PPF.

Assume that Victoria and Max, without trading with each other, will produce and consume the amount of pizzas and cheese steak hoagies shown in the "without trade" columns of the table below.
 

Person

Good

Production
(without trade)

Consumption
(without trade)

Production
(with specialization and trade)

Consumption
(with specialization
and trade) 

Victoria 

pizza 

45 

45 

70 

46 (keeps)

cheese steak hoagie 

45 

45 

0

77 (from Max)

Max 

pizza 

12 

12 

0

24 (from Victoria)

cheese steak hoagie 

12 

12 

96 

19 (keeps)

Now, assume that both Victoria  and Max decide to specialize, and Victoria trades 24 pizzas to Max for 77 cheese steak hoagies. This outcome is shown in the last two columns of the table.

Compared with the result without trade, what are the gains from trade that Victoria experiences when she and Max specialize and trade?

Jessica and Brad both produce nuts and coffee. They each prefer to consume a diet that is half nuts and half coffee. Both have access to the same resources.

If Jessica focuses on producing only coffee, she can produce 20 pounds of coffee in a week. If she only produces nuts, she can produce 40 pounds of nuts in a week.

Brad can produce a maximum of 15 pounds of coffee in a week. He could also choose to produce only nuts, in which case he can produce 20 pounds of nuts a week.

Suppose a rise in the working population changes the production capacity in a country. How would you represent this situation with a production possibilities frontier?

Suppose that a politician tells you about a plan to create two expensive but necessary programs for building more production facilities for hydroelectric power and increasing subsidies for health care. At the same time, the politician is unwilling to cut any other programs. 

You work for an architectural firm where your job involves designing buildings and writing computer code for the building plans. How does your decision to invest in specialized job skills affect your ability to do your job? Which of the graphs best represents the expected shift in your PPF if you make the investment in human capital?

Suppose we have a 2-person world, with only Stephen and his friend LeBron. Suppose that Stephen can move 60 boxes or bake 20 cookies in an hour. Suppose that LeBron could move 24 boxes or bake 6 cookies in an hour. Is trade possible?

Assume that Maddie and Hector, without trading with each other, will produce and consume the amount of donuts and bagels shown in the "without trade" columns of the table below.
 
Now, assume that both Maddie  and Hector decide to specialize, and Maddie trades 24 donuts to Hector for 77 bagels. This outcome is shown in the last two columns of the table.

Compared with the result without trade, what are the gains from trade that Maddie experiences when she and Hector specialize and trade?

Jane and Buster both produce nuts and coffee. They each prefer to consume a diet that is half nuts and half coffee. Both have access to the same resources.

If Jane focuses on producing only coffee, she can produce 20 pounds of coffee in a week. If she only produces nuts, she can produce 40 pounds of nuts in a week.

Buster can produce a maximum of 15 pounds of coffee in a week. He could also choose to produce only nuts, in which case he can produce 20 pounds of nuts a week.

Who has an absolute advantage in coffee production? Who has an absolute advantage in nut production?

a. What is the opportunity cost for Jane to produce one more pound of nuts?     pounds of coffee

b. What is the opportunity cost for Jane to produce one more pound of coffee?    pounds of nuts

c. What is the opportunity cost for Buster to produce one more pound of nuts?     pounds of coffee

d. What is the opportunity cost for Buster to produce one more pound of coffee?     pounds of nuts

Who has a comparative advantage in nut production? Who has a comparative advantage in coffee production?

You work for an architectural firm where your job involves designing buildings and writing computer code for the building plans. How does your decision to invest in on-the-job training affect your ability to do your job? Which of the graphs best represents the expected shift in your PPF if you make the investment in human capital?

The figure above shows a production possibilities frontier (PPF) for a society that makes two goods—pizza and wings. For each point in the figure, indicate whether the point represents an efficient use of resources, an inefficient use of resources, or is unattainable.

The figure below depicts three production possibility frontiers for an economy that produces two goods, pizza and BMWs. Refer to the figure when you answer the questions.

A movement from point A to point B could occur due to 

A movement from point A to point C could occur due to 

 A movement from point C to point D could occur due to 

Use the following information to answer the questions below.

Suppose that Oscar and Felix are roommates and they want to find a way to divide up household chores—cooking meals and doing laundry. It takes Oscar 45 minutes to make a meal and 90 minutes to do a load of laundry. It takes Felix 60 minutes to make a meal and 60 minutes to do a load of laundry.

(a)   has the absolute advantage in making meals.

(b)   has the absolute advantage in doing laundry.

(a) Oscar’s opportunity cost of doing a load of laundry is     meals.
(b) Felix’s opportunity cost of doing a load of laundry is     dinners.

If Oscar and Felix want to specialize,

(a) Oscar should 

 (b) Felix should 

If Oscar and Felix trade, one load of laundry should trade for more than (a)          meal(s) but fewer than (b)         meal(s).

Suppose that Katniss and Peeta have been exiled on a deserted island. To feed themselves, they need to catch fish and hunt rabbits. The table below shows the production potential of Katniss and Peeta. If Katniss spends all her time fishing, she can catch 40 fish. If she spends all her time hunting rabbits, she can catch 10 rabbits. Peeta can spend all his time on fish and catch 8 fish or all his time on rabbits and catch 12 rabbits. Both Katnis and Peeta face a constant trade-off between catching fish and hunting rabbits.

Katniss's opportunity cost for catching 1 rabbit is        fish.

Peeta's opportunity cost for catching 1 rabbit is        fish.

Suppose Katniss and Peeta specialize and trade. For trade to be mutually beneficial, the price of a rabbit should be more than        fish but less than        fish.

Suppose we have a 2-person world, with only Stephen and his friend LeBron. Suppose that Stephen can move 70 boxes or bake 28 cookies in an hour. Suppose that LeBron could move 24 boxes or bake 6 cookies in an hour. Is trade possible?

Choose one: A. No, trade isn’t possible, because Stephen has an absolute advantage in both making cookies and moving boxes. B. Yes, trade is possible. Stephen should make cookies while LeBron moves boxes, because Stephen has a comparative advantage in making cookies and LeBron has a comparative advantage in moving boxes. C. Yes, trade is possible. Stephen should move boxes while LeBron makes cookies, because Stephen has a comparative advantage in moving boxes, whereas LeBron has a comparative advantage in making cookies. D. No, trade isn’t possible, because LeBron has an absolute advantage in both making cookies and moving boxes.

You work for an architectural firm where your job involves designing buildings and writing computer code for the building plans. How does your decision to invest in on-the-job training affect your ability to do your job? Which of the graphs best represents the expected shift in your PPF if you make the investment in human capital?

Which of the following transactions is not an example of gains from trade?

Items (7 items) (Drag and drop into the appropriate area below)

·         Jason trades a rare Ricky Henderson rookie baseball card for a bag of socks.

·         The Philadelphia 76ers basketball team trades all of its young stars to the Los Angeles Lakers in exchange for draft picks.

·         Someone steals a bag of groceries from your car to feed his hungry children.

·         A group of friends agree that whoever bets on the loser of the Monday night game must pay $5 to whoever bets on the winner.

·         You purchase a lottery ticket and win a million dollars.

·         In the lunchroom, two cookies are traded for two granola bars.

·         One person pays another to mow her yard.

Jessica and Benny both produce nuts and coffee. They each prefer to consume a diet that is half nuts and half coffee. Both have access to the same resources.

If Jessica focuses on producing only coffee, she can produce 20 pounds of coffee in a week. If she only produces nuts, she can produce 40 pounds of nuts in a week.

Benny can produce a maximum of 15 pounds of coffee in a week. He could also choose to produce only nuts, in which case he can produce 20 pounds of nuts a week.

Jody and Bert both produce nuts and coffee. They each prefer to consume a diet that is half nuts and half coffee. Both have access to the same resources.

If Jody focuses on producing only coffee, she can produce 20 pounds of coffee in a week. If she only produces nuts, she can produce 40 pounds of nuts in a week.

Bert can produce a maximum of 15 pounds of coffee in a week. He could also choose to produce only nuts, in which case he can produce 20 pounds of nuts a week.

Who has an absolute advantage in coffee production? Who has an absolute advantage in nut production?

Choose one: A.  Jody has an absolute advantage in both coffee and nuts. B.  Jody has an absolute advantage in coffee, and Bert has an absolute advantage in nuts. C.  Bert has an absolute advantage in both coffee and nuts. D.  Bert has an absolute advantage in coffee, and Jody has an absolute advantage in nuts.

a. What is the opportunity cost for Jody to produce one more pound of nuts?         pounds of coffee

b. What is the opportunity cost for Jody to produce one more pound of coffee?        pounds of nuts

c. What is the opportunity cost for Bert to produce one more pound of nuts?         pounds of coffee

d. What is the opportunity cost for Bert to produce one more pound of coffee?         pounds of nuts

Who has a comparative advantage in nut production? Who has a comparative advantage in coffee production?

Choose one: A.  Jody has a comparative advantage in nut production, and Bert has a comparative advantange in coffee production. B.  Bert has a comparative advantage in nut production, and Jody has a comparative advantange in coffee production. C.  Bert has a comparative advantage in both coffee and nut production. D.  Jody has a comparative advantage in both coffee and nut production.

Label the following points using the production possibilities curve below.

Unattainable level of production, Efficient use of inputs in production, Attainable but inefficient use of inputs in production

Which of the following give the bowed-outward shape to the PPF?

Choose one or more: A.the law of increasing specialization B.the law of decreasing opportunity cost C.the concept of ceteris paribus D.the law of increasing opportunity cost

A company that produces brass hardware for doors has the ability to produce up to 6,500 hinges per week but then is unable to produce doorknobs. Or it can produce up to 650 doorknobs per week but then is unable to produce any hinges.

In the graph below, use the straight-line tool to draw the company's production possibilities frontier, where the quantities are per week (do not use the point tool to plot endpoints). Then use the point tool plot a point to indicate the company's maximum output where it is producing exactly three times as many hinges as doorknobs.

To refer to the graphing tutorial for this question type, please click here.

Assume that Juanita and Lucas, without trading with each other, will produce and consume the amount of donuts and bagels shown in the "without trade" columns of the table below.
 

Person

Good

Production
(without trade)

Consumption
(without trade)

Production
(with specialization and trade)

Consumption
(with specialization
and trade) 

Juanita 

donut 

55 

55 

80 

56 (keeps)

bagel 

55 

55 

0

81 (from Lucas)

Lucas 

donut 

13 

13 

0

24 (from Juanita)

bagel 

13 

13 

96 

15 (keeps)

Now, assume that both Juanita  and Lucas decide to specialize, and Juanita trades 24 donuts to Lucas for 81 bagels. This outcome is shown in the last two columns of the table.

Compared with the result without trade, what are the gains from trade that Juanita experiences when she and Lucas specialize and trade?

Assume that Sydney and Lucas, without trading with each other, will produce and consume the amount of donuts and bagels shown in the "without trade" columns of the table below.
 
Now, assume that both Sydney  and Lucas decide to specialize, and Sydney trades 19 donuts to Lucas for 77 bagels. This outcome is shown in the last two columns of the table.

Compared with the result without trade, what are the gains from trade that Sydney experiences when she and Lucas specialize and trade?

Choose one: A.  70 donuts and no bagels B.  no donuts and no bagels C.  1 donut and 27 bagels D.  27 donuts and 1 bagel

Suppose that a politician tells you about a plan to create two expensive but necessary programs for building more production facilities for solar power and starting a program to fix bridges and highways. At the same time, the politician is unwilling to cut any other programs. Assume that all resources are already being used efficiently in other programs. The politician is trying to reach __________ on the PPF.

Suppose that a politician tells you about a plan to create two expensive but necessary programs for building more production facilities for solar power and increasing subsidies for health care. At the same time, the politician is unwilling to cut any other programs. Assume that all resources are already being used efficiently in other programs. The politician is trying to reach __________ on the PPF.

Choose one:  A.  an inefficient point B.  an impossible point C.  an efficient point D.  a possible point

Look at the production possibilities frontier depicted below, and the four possible combinations of pizza and wings to the right. Click and drag three of the four combinations to the appropriate place in the PPF. One of the four combinations cannot be shown on the diagram.

Consider an economy that produces two goods: pizza and chicken wings. The figure below shows the production possibilities frontier for the economy.

Refer to the figure to answer the questions below.

Right now, the economy produces 30 pizzas and 140 wings (point D). Suppose that people's preferences change and they want to consume 50 pizzas. The opportunity cost of 20 more pizzas is         wings.

Suppose that people in the economy want even more pizza. Instead of 50 pizzas they want 70 pizzas. The opportunity cost of these additional 20 pizzas is         wings.

Suppose a flood changes the production capacity in a country. How would you represent this situation with a production possibilities frontier?

Suppose a newly developed production technology changes the production capacity in a country. How would you represent this situation with a production possibilities frontier?

Choose one: A.  The entire PPF shifts in.  B.  The economy moves from a point on the PPF to a point beyond the PPF. C.  The entire PPF shifts out.  D.  The economy moves from a point below the PPF to a point on the PPF.

Person

Opportunity cost of 1 bottle of soda 

Opportunity cost of 1 bottle of coconut water 

Judith 

4 bottles of coconut water 

1/4 of a bottle of soda 

Matthew 

6 bottles of coconut water 

1/6 of a bottle of soda 

Person

Opportunity cost of 1 jar of baby food 

Opportunity cost of 1 bottle of coconut water 

Mary Ann 

6 bottles of coconut water 

1/6 of a jar of baby food 

Matthew 

8 bottles of coconut water 

1/8 of a jar of baby food 

Based on the table above, which of the following statements is true?

Choose one: A.  Matthew has a comparative advantage in producing jars of baby food, while Mary Ann has a comparative advantage in producing bottles of coconut water B.  Both Mary Ann and Matthew have a comparative advantage in producing jars of baby food or bottles of coconut water.  C.  Matthew has a comparative advantage in producing bottles of coconut water, while Mary Ann has a comparative advantage in producing jars of baby food.  D.  Neither Mary Ann nor Matthew has an absolute advantage in producing jars of baby food or bottles of coconut water.