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# Homework 1 Answer Key - Jack is buying shirts It costs him...

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Economics 101 Homework #1 Answer Key Fall 2007 1. a. 0 10 20 30 40 50 0 5 10 15 20 25 30 Line B Line A b. Line A: y = (-1/6)x + 15 Line B: y = 3x – 5 c. x = 120/19 = 6.32 y = 265/19 = 13.95 2. a. Normative b. Positive c. Positive d. Normative 3. a. Jack has the absolute advantage in the production of wheat. b. Jack has the absolute advantage in the production of shirts. c. Jack: 1 shirt Jill: 2 shirts d. Jack: 1 unit of wheat Jill: ½ units of wheat e. Since Jack has a lower opportunity cost of producing wheat, he should produce extra units of wheat and sell them to Jill. Since Jill has a lower opportunity cost of producing shirts, she should produce extra shirts and sell them to Jack. f. Jill is selling shirts. It costs her ½ units of wheat to produce a shirt. Thus, the price of shirts must be greater than ½ units of wheat.

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Unformatted text preview: Jack is buying shirts. It costs him 1 unit of wheat to produce a shirt. He will only buy a shirt from Jill if it is cheaper to buy the shirt from Jill than to produce it on his own. So, the price of shirts must be less than 1 unit of wheat. Then, for a trade to be made, the price of shirts must be less than 1 unit of wheat and greater than ½ units of wheat. 4. a. Point A is feasible but inefficient. b. Point B is feasible and efficient. c. Point C is not feasible. 5. a. The opportunity cost of producing another unit of milk at point A is (1/3) units of cotton. b. The opportunity cost of producing another unit of cotton at point B is (1/2) units of milk....
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