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Exam 2: The Economic Problem: Scarcity and Choice

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Question 51

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Evaluate the following two statements: "He is income rich but he is not very wealthy" "He is income poor but he is wealthy"

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The first person might be making a lot o...

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Question 52

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Comment on the following statement: "I decided to buy a car from a dealer in a town 100 miles away because he was offering a price that was $100 lower than the dealer in my hometown. Therefore, I saved $100."

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Assuming that the individual had no othe...

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Question 53

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Without drawing a graph explain what probably happened to the production possibility frontier during the Black Plague.

Assume that yields on bonds (rate of return) begin to fall while the stock market is booming, what should we see happen to the demand and price of stocks and why? What can we say about the opportunity cost of holding on to bonds in this situation?

The following table shows output per hour for Martha and Stewart who make gift baskets and potholders: What is the opportunity cost of a gift basket for Martha? What is the opportunity cost of a gift basket for Stewart? Who has a comparative advantage in producing gift baskets? How can you tell?

Refer to the information provided in Scenario 1 below to answer the following questions. SCENARIO 1: Consider the following data for the harvest of crabs versus the harvest of fish off the coast of Virginia in answering the following questions. -Refer to Scenario 1. What is the economic significance of 25 fish captured and 25 crabs captured?

Refer to the information provided in Scenario 4 below to answer the questions that follow. SCENARIO 4: Suppose that a state needs to build both prisons and schools with a budget limited to 10 million dollars. Schools cost $1 million each to build and prisons cost $2 million each to build. -Refer to Scenario 4. What is the maximum number of schools that can be built? The maximum number of prisons?

The table below represents five points on the production possibility frontier for the small country of Bistro, which produces only crackers (measured in thousands of boxes) and cheese (measured in thousands of pounds): Does the production possibility frontier demonstrate the law of increasing opportunity cost? How can you tell?

What does a production possibility frontier represent?

The following table shows output per hour for Fred and Barney who mow lawns and trim hedges: What is the opportunity cost of mowing a lawn for Fred? What is the opportunity cost of trimming a hedge for Fred? Who has a comparative advantage in mowing lawns? How can you tell?

What is the difference between capital goods and consumer goods?

Refer to the information provided in Scenario 1 below to answer the following questions. SCENARIO 1: Consider the following data for the harvest of crabs versus the harvest of fish off the coast of Virginia in answering the following questions. -Refer to Scenario 1. Assume this economy could either be at Point B or Point C. From which of these points is it more costly to produce more crabs? Explain your answer.

What is the difference between a command economy and a laissez-faire economy?

In economic terminology, what is the meaning of investment?

-Refer to Scenario 3. Compute the opportunity cost of building two more huts in one day.

Explain why some researchers conclude that Americans are becoming more obese because of the existence of fast-food restaurants. If fast-food restaurants have been around for over 50 years why is the trend toward obesity only a recent one? Explain.

-Refer to Scenario 3. What is the maximum potential increase in coconut production and maximum potential increase in hut production described in the previous question?

Refer to the information provided in Scenario 4 below to answer the questions that follow. SCENARIO 4: Suppose that a state needs to build both prisons and schools with a budget limited to 10 million dollars. Schools cost $1 million each to build and prisons cost $2 million each to build. -Refer to Scenario 4. Assume that the price of a prison falls to $1.5 million and that the price of school production rises to $2 million each. Draw the new production possibilities frontier. What is the new opportunity cost of producing one more prison?

What are the implications for economic growth for countries specializing in consumer goods rather than capital goods? Assume the countries consume what they produce.

Explain the difference between absolute advantage and comparative advantage.