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# homework1answersfall2007 - Economics 102 Fall 2007...

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Economics 102 Fall 2007 Homework #1 – Answer Key 1. Cheri’s opportunity cost of seeing the show is \$115 dollars. This includes the \$80 she could have earned working, plus the \$30 for the ticket, plus the \$5 in transportation costs. Recall the definition of opportunity cost is “the real cost of an item, including what must be given up to obtain it.” (Krugman) If Cheri had decided to work instead of seeing the concert she would have earned \$80, and she would still have the \$35 (the cost of the show and the transportation cost to the show) to spend later. 2. a) Normative. This is an opinion about how the income tax structure should be set up, which cannot be tested by data. b) Positive. This statement can be tested by data. c) Normative. This is an opinion about protecting jobs in the United States. 3. a) Recall that slope is calculated with formula: 1 2 2 2 x x y y - - The two points that are most easily identified for Japan are the intercepts, (0,75) and (100,0) respectively. Plugging these points into the slope formula yields: 4 3 0 100 75 0 - = - - or -0.75. For the United States, the two points that are most easily identified are also the intercepts (0,60) and (0,25). Plugging these points into the slope formula yields: 5 12 0 25 60 0 - = - - or -2.4. b) Casey’s claim is incorrect. Casey correctly observed that Japan has an absolute advantage in the production of both cars and TV sets. Notice that if Japan used all of its resources to only produce cars, that they could produce 75 cars, while the most the United States could produce is 60 cars. Also, if Japan used all of its resources to only produce TV sets, they could produce 100 TV

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homework1answersfall2007 - Economics 102 Fall 2007...

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