midterm1sol

midterm1sol - is(0,200 When both Adam and Bill produce only...

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1 Multiple Choice 1. D 2. B 3. A 4. B 5. C 6. D 7. D 8. E 9. D 10. D 11. B 12. C 13. B 14. A 15. C 16. E 17. B 18. D 19. A 20. B 2 Short Answer 1. a. Draw downward sloping demand, upward sloping supply, label their intersection the point ( Q * ,P * ). b. Supply shifts in to S 0 , intersection of the new supply curve and old demand curve is ( Q 0 ,P 0 ). c. If you said gloves and bats are complements: Demand shifts in to D 0 , new equilibrium is at the intersection with S 0 . If you said they are substitutes, demand shifts out. d. If you said gloves and bats are complements, the eﬀect on price is unclear. The supply shift sends price up, but the demand shifts sends price down. The net eﬀect is ambiguous. If you said gloves and bats are substi- tutes, then both the demand and supply shifts move price up, so the new equilibrium price is deﬁnitely higher than P * . 2. a. Adam has the comparative advantage in ﬁsh. Bill has the absolute advantage. b. If you put coconuts on the y-axis, and ﬁsh on the x-axis, the y-intercept
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Unformatted text preview: is (0,200). When both Adam and Bill produce only coconuts, together they produce 200. To produce some ﬁsh, it is most eﬃcient to have Adam do it, since is OC is lower than Bill’s. So the PPC starts out with a slope of-1 2 . Once they get to the point (100,150), Adam is producing all of the ﬁsh he can. If they want more ﬁsh, Bill has to start producing ﬁsh. So from this point on, the slope is-1, down to the x-intercept of (250,0). c. Yes, they can. If they specialize, they have production of (100,150). To show that this makes them better oﬀ, you just have to divide this in such a way that neither could have produced the bundle they are allotted on their own. For instance, if Adam gets (20,70) and Bill gets (80,80). Neither could achieve these consumption bundles without specializing and trading with the other. 1...
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This note was uploaded on 08/02/2011 for the course ECON 1 taught by Professor Tang during the Spring '08 term at UCSD.

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