Unformatted text preview: ECON 1014-03 HOMEWORK #1 DR. PODGURSKY Due: 1/28/2015 by the end of class. No late assignments will be accepted.
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Name: _____Answer Key___________________ Pawprint ID:__________________ Chapter 1
1. Zed is an unemployed carpenter. He collects $200 per week in unemployment
insurance, however in order to receive the unemployment insurance, he must
actively “search” for work. He spends 2 hours per day, 5 days per week, looking
for a job. One day, his Uncle Joe, who owns a car wash, offers Zed a job as his
“wax man.” Uncle Joe will pay Zed $200 per week after taxes for 40 hours of
work. What is Zed’s opportunity cost to take the “wax man” position? Choose the
best answer. (1 pt.; CIRCLE ONE)
a. Nothing. There is no economic difference between having the job and
accepting unemployment insurance.
b. 38 hours per week of lost free time.
c. 30 hours per week of lost free time.
d. There is no cost to this decision, because Zed is better off with a job than
without one, even if it pays the same as unemployment insurance.
e. Impossible to determine from given information.
2. Identify whether the following statements are positive or normative. For “positive” put a P in the blank. For “normative” put N in the blank. (4 pts.) i. _____N_____ Zed should take the job. ii. _____P____ If the United States has a comparative advantage in corn and Canada has a comparative advantage in wheat, then if the two countries engage in trade, the United States should specialize in corn. iii. _____P______ By specializing in production of goods for which they have comparative advantage and engaging in free trade, a country can increase its consumption. iv. ______P_____ Free trade does not benefit everyone. Score ______ / 12 Chapter 2 3. Suppose that Bemidji has 50 labor units available and Freedonia has 40 labor units available. Labor Units to Produce Labor Units to Produce 1 lb. of Beef 1 lb. of Pork Bemidji 5 2 Freedonia 2 4 i. On the grid below, draw the production possibility frontiers for both Bemidji and Freedonia. For both Bemidji and Freedonia, label an efficient point of production if they choose not to trade. Be sure to label both axes and the PPF lines. (3 pts.) Note that the axes can be switched and the points D and B only need to fall on their respective PPF lines. 1 pt. for labels 1 pt. for PPFs 1 pt. for efficient points of production (Give partial credit as needed) ii. Bemidji has comparative advantage in production of ________Pork_____________, and Freedonia has comparative advantage in production of _______Beef______________. (1 pt.) iii. For Bemidji, the opportunity cost of 1 lb. of beef is ______2.5_______ lbs. of pork, and for Freedonia the opportunity cost of 1 lb. of pork is ________2 ______lbs. of beef. (Assume the two countries only produce pork and beef.) (2 pts.) iv. Which of the following represents an acceptable trade price if each country specializes in production of the good for which they have comparative advantage? Choose the best answer. (1 pt.; CIRCLE ONE) a. 1 lb. of beef for ½ lb. of pork < Trade Price < 1 lb. of beef for 2 lbs. of pork b. 1 lb. of pork for ½ lb. of beef < Trade Price < 1 lb. of pork for 5/2 lbs. of beef c. 2/5 lb. of beef for 1 lb. of pork < Trade Price < 2 lbs. of beef for 1 lb. of pork d. 1 lb. of pork for 1 lb. of beef < Trade Price < 2 lbs. of pork for 1 lb. of beef ...
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