Practice_Problems_01 - Notes 01: Answers to Practice...

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Unformatted text preview: Notes 01: Answers to Practice Problems 1. E) Economics is the study of how people make decisions in the presence of scarcity. 2. A) Gains from trade is the extent to which individuals, firms, or nations benefit by engaging in exchange. 3. C) Canada's marginal cost of producing 1 ton of wheat is found by reducing 10 tons of apples divided by 50 tons of wheat, giving 10/50=1/5. 4. B) The United States has a marginal cost of producing wheat of 5/20=1/4, so Canada's cost is lower. The country with the lowest marginal cost has comparative advantage. 5. To produce 11 tons of apples, the United States should specialize in apples, producing 5 tons. Canada should produce another 6 tons of apples and 20 tons of wheat. 6. A) The Production Possibilities Frontier shows the maximum output combinations for a person (or firm, or country, etc). 7. A) Nelson has a comparative advantage in producing MC because his marginal cost is 1/4 while Emma's is 1/2. 8. B) Nelson makes the most income by producing 12 MC for $12. (He could only earn $9 making E.) Emma makes the most income by producing 3 E for $9. ...
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