Homework set number 1. Oct 14th 2015
Answer all questions. Each question carries equal marks. Late submissions will not be
accepted. Fill in all answers using the answer grid below, placing an ‘X’ in the column with
the answer you choose.
Question
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Answer
Questions:
Question 1.
People who provide you with goods and services
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.
Question 2.
An economy’s production possibilities frontier is also its consumption possibilities frontier
a. under all circumstances.
b. under no circumstances.
c. when the economy is self-sufficient.
d. when the rate of tradeoff between the two goods being produced is constant.
Figure 3-4
Perry’s Production Possibilities
Frontier
20
poems
Jordan’s Production Possibilities
Frontier
20
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
1
2
3
4
5
6
7
8
novels
poems
1
2
3
4
5
Question 3.
Refer to Figure 3-4. The opportunity cost of 1 novel for Perry is
a. 1/6 poem.
b. 2 poems.
c. 6 poems.
d. 12 poems.
6
7
8
novels
Question 4.
Refer to Figure 3-4. Which of the following is not correct?
a. Perry and Jordan could each consume 2 novels and 6 poems without trade.
b. Jordan could consume 2 novels and 6 poems both with and without trade.
c. Perry and Jordan could each consume 2 novels and 6 poems with trade.
d. Perry and Jordan could each consume 12 poems without trade.
Question 5.
Refer to Figure 3-4. Perry has an absolute advantage in the production of
a. novels and Jordan has an absolute advantage in the production of poems.
b. poems and Jordan has an absolute advantage in the production of novels.
c. novels and Jordan has an absolute advantage in the production of neither good.
d. neither good and Jordan has an absolute advantage in the production of novels.
Question 6.
Refer to Figure 3-4. If Perry and Jordan switch from each person dividing their time equally
between the production of novels and poems to each person spending all of their time
producing the good in which they have a comparative advantage, then total production
of novels will increase by
a. 1.
b. 2.
c. 3.
d. 4.
Question 7.
The following table contains some production possibilities for an economy for a given month.
Sweaters
Gloves
4
300
6
?
8
100
If the production possibilities frontier is bowed outward, then “?” could be
a. 100.
b. 150.
c. 200.
d. 250.
Question 8.
Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes
ceramic vases, but Regan is better at producing both goods. In this case, trade could
a. benefit both Jayson and Regan.
b. benefit Jayson, but not Regan.
c. benefit Regan, but not Jayson.
d. benefit neither Jayson nor Regan.
Question 9.
Consider two individuals — Howard and Mai — each of whom would like to wear sweaters
and eat tasty food. The gains from trade between Howard and Mai are least obvious in
which of the following cases?
a. Howard is very good at knitting sweaters and at cooking tasty food, but Mai’s skills
in both of these activities are very poor.
b. Howard is very good at knitting sweaters and at cooking tasty food; Mai is very
good at knitting sweaters, but she knows nothing about cooking tasty food.
c. Howard’s skills in knitting sweaters are fairly good, but his skills in cooking tasty
food are fairly bad; Mai’s skills in knitting sweaters are fairly bad, but her skills in
cooking tasty food are fairly good.
d. Howard’s skills are such that he can produce only sweaters, and Mai’s skills are
such that she can produce only tasty food.
Question 10.
The most obvious benefit of specialization and trade is that they allow us to
a. work more hours per week than we otherwise would be able to work.
b. consume more goods than we otherwise would be able to consume.
c. spend more money on goods that are beneficial to society, and less money on goods
that are harmful to society.
d. consume more goods by forcing people in other countries to consume fewer goods.
Question 11.
The two words most often used by economists are
a. prices and quantities.
b. resources and allocation.
c. supply and demand.
d. efficiency and equity.
Question 12.
Which of the following is not a determinant of the demand for a particular good?
a. the prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good
Question 13.
Suppose that when income rises, the demand curve for doctor’s visits shifts to the right. In
this case, we know doctor’s visits are
a. inferior goods.
b. normal goods.
c. perfectly competitive goods.
d. durable goods.
Question 14.
When quantity demanded has increased at every price, it might be because
a. the number of buyers in the market has decreased.
b. income has increased, and the good is an inferior good.
c. the costs incurred by sellers producing the good have decreased.
d. the price of a complementary good has decreased.
Question 15.
Equilibrium price must decrease when demand
a. increases and supply does not change, when demand does not change and supply
decreases, and when demand decreases and supply increases simultaneously.
b. increases and supply does not change, when demand does not change and supply
decreases, and when demand increases and supply decreases simultaneously.
c. decreases and supply does not change, when demand does not change and supply
increases, and when demand decreases and supply increases simultaneously.
d. decreases and supply does not change, when demand does not change and supply
increases, and when demand increases and supply decreases simultaneously.
Question 16.
If the supply of a product decreases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity to both increase.
d. and equilibrium quantity to both decrease.
Question 17.
The signals that guide the allocation of resources in a market economy are
a. surpluses and shortages.
b. quantities.
c. government policies.
d. prices.
Figure 4-20
The graph below pertains to the supply of paper to colleges and universities.
price
S
A
y
S
B
x
quantity
Question 18.
Refer to Figure 4-20. All else equal, an increase in the price of the pulp used in the paper
production process would cause a move from
a. x to y.
b. y to x.
c. SA to SB.
d. SB to SA.
Question 19.
Refer to Figure 4-20. All else equal, buyers expecting paper to be more expensive in the
future would cause a current move from
a. x to y.
b. y to x.
c. SA to SB.
d. SB to SA.
Question 20.
Refer to Figure 4-20. All else equal, an increase in the use of laptop computers for notetaking would cause a move from
a. x to y.
b. y to x.
c. SA to SB.
d. SB to SA.