Mann Mathew Econ 105 January 29, 2008 Homework #1 1.) Autos 4 3 2 1 15 26 33 36 Books 3 = 15 2 = 26 3 autos has opportunity cost = 11 books
2.) a.) Germany has an absolute advantage in books because if Germany used all their resources to just produce books they could make 10 unites compared to France only able to produce 3 units. Germany also has an absolute advantage in pens because Germany using all of their resources can produce 20 units of pens compared to France only able to produce 15 units. b.) Germany has the comparative advantage in producing books and pens because they have a (1 pen = book) ratio and France has a (1 pen = 1/5 book) ratio. 3.) P Textbooks P
D'
D Q
D'
D Q
The price of paper used by book producers increases
Tuition and other fees increase
4.) P S'
S
Q The supply decreases because the strawberries are not as abundant. 5.) Ted an spends hour studying instead of going for a bike ride. The opportunity cost to him of studying is: b.) the value of the enjoyment and exercise he would have received had he gone for a bike ride. 6.) With time, which one of the following strategies would be most likely to result in an outward shift in the production possibilities curve of an economy? c.) institution of a tax policy encouraging firms to increase their capital resources at the expense of current consumption. 7.) The Kansas City Times of April 1, 1995, reported that the Ashland Oil Company announced that it had developed a process to refine 25% more gasoline from a barrel of crude oil than is now possible. What would be the effect of the new Ashland process upon the market for gasoline? a.) the supply curve would shift to the right, thereby putting downward pressure on the equilibrium price.