175. If the government decided to heavily regulate small farmers who grow organic and
free-range food, the supply of that food:
A) would increase because the regulations would improve the quality of that food.
B) would decrease because the regulations are
products from all over the world and how millions of other people provide the public
with food, clothing, and shelter. Paraphrasing Adam Smith: people do these things out
of their own self-interest to earn money, not fro
Problem Set 6 Solution
1. There are many foreign embassies in the Washington, DC. In fact, there is an
area of the city where quite a few of them are very close to each other. As you
walk along one of the streets you observe thr
76. What is thinking on the margin?
A) Making decisions that are of noneconomic importance.
B) Making choices that are based on historical precedents.
C) Making choices that ignore the marginal benefits, but not the marginal costs, of
78. (Table: Production Possibilities for Italy and Belgium) According to the table on
production possibilities for Italy and Belgium, Belgium should specialize in linen
production because it:
A) has an absolute advantage in producing linen and pasta.
50. Comparative advantage is determined by which of the following?
B) bargaining power
C) opportunity cost
51. The theory of comparative advantage is:
A) rarely relevant for identifying whether gains from trade can be obtaine
103. Suppose that consumers begin to believe that the price of housing will be lower next
period. What will happen in the market for housing as a result of these expectations?
A) Nothing will happen now. Consumers will wait for the price to actually decre
209. The human brain has no limits, so the division of knowledge decreases the total
knowledge in society.
210. Without trade, specialization is impractical.
211. The U.S. interstate highway system probably allowed more p
Use the following to answer questions 148-149:
Figure: Producer Surplus
148. (Figure: Producer Surplus) In the diagram, if the market price of coffee is $4, how much
producer surplus do suppliers earn?
149. (Figure: Producer
75. As the population of elderly in the United States increases, which service will likely see
the biggest increase in demand?
A) skateboard repair
B) home medical care
C) career training
D) child day care
76. The average age in the United States is _, ca
134. Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities
frontier is characterized as: Y = 50 2X. What is the opportunity cost of producing a
tenth unit of fish (i.e., going from nine units of fish production to 10)?
95. The average tax on a professor's income of $100,000 is 18 percent, and the marginal tax
rate above $100,000 is 45 percent. If the professor teaches during the summer and earns
an additional $10,000 (bringing her total earnings for the year to $110,000
240. Among other things, an understanding of economics can help you better manage your
241. One of the limitations of economics is that the principles only apply to the American
economic system and not foreign economies.
60. Most people do not buy the safest car they can find. Why not?
A) Other factors matter besides safety, such as comfort, cost, and fuel economy.
B) People do not take the time to understand the safety features of cars.
C) Consumers are unaware of the ri
15. Specialization and trade can _ the per-unit cost of production because _ .
A) decrease; it allows for more small-scale production.
B) decrease; it creates economies of scale associated with large-scale production
C) increase; it requires more expensiv
183. In addition to monetary incentives, economists also believe people respond to incentives
like fame, power, reputation, and love.
184. Economists argue that self-interested people only respond to monetary incentives.
Eciency and Trade
Previously, we treated prices and income as parameters, and saw how demand depended on these parameters. Now, we ask what prices might emerge as consumers make mutually benecial trades. Suppose that there are two consumers, and x the tot
M. Utku Unver
M. Utku Unver Micro Theory (BC)
1 / 23
So far we have been analyzing the behavior of a single consumer. In this
chapter, we will see how consumers interact in a market setting
Problem Set VI: Edgeworth Box
Exercises solved in class on March 15th, 2010
Recap: pure exchange
The simplest model of a general equilibrium theory is a model with no production: a pure exchange
1. Paretian welfare conditions are Pareto
How do we determine whether the state is Pareto optimal or efficient?
We have a set of conditions to determine the set of states is
MRS= for all individuals
Microeconomics II notes:
Primary focus on
1. Welfare economics
2. General equilibrium uses concepts on theories of welfare economics.
3. Public goods
Prepare your own notes regarding the lecture and reading references.
109. A country has an absolute advantage in production if:
A) it can produce the same good using fewer inputs than another country.
B) it can produce a good using fewer inputs than it takes another country to produce a
C) other countries c
LESSON 2 ACTIVITY 12
All About GDP
Is This Counted as Part of GDP?
Which of the following are included and which are excluded in calculating GDP? Explain your decisions.
1. A monthly check received by an economics student who
LESSON 2 ACTIVITY 51
Barriers to Trade
The free trade movement started about 200 years ago. Previously, it appears that one of the goals of
governments was to stifle international trade, presumably for the benefit of their own econom
LESSON 5 ACTIVITY 17
The Business Cycle
The Business Cycle
PERIODS OF TIME
The curved line on Figure 17.1
Indicate whether each of the following is counted in the United States Gross Domestic Product for
the year 2015, and if it is counted in GDP state which category of expenditures. Explain each of your
The value of a new washer sold at Home Depot i
LESSON 3 ACTIVITY 52
Imbalance of Payments
The place is New York City. The store is McDonalds. A visitor from Japan tries to buy a Big Mac with
several yen. The store refuses. McDonalds wants dollars. Somewhere, somehow, this tourist
160. Central banking in the United States refers to:
A) the operation of the Federal Reserve in its attempts to affect the economy.
B) how commercial banks interact with one another to earn more profits.
C) the federal government's control of the United S
60 4P = 0
60 = 4P. Therefore, P = $15. Thus this is the price where the demand equation
intercepts the price axis.
At the market price of $5, Qd = 60 4(5) = 40.
The graph is as follows:
Total consumer surplus is therefore: 1/2 10 40 = $200.
245. The first
137. (Figure: Producer Surplus) Refer to the figure. What is the producer surplus at a price of
$2 per unit?
138. (Figure: Producer Surplus) Refer to the figure. What is the change in producer surplus if
the price rises from $2 t
167. Babe Ruth could produce two home runs in a week of play as a fielder or one win in a
week of play as a pitcher. What was his opportunity cost for a week of pitching?
A) one win
B) two wins
C) one home run
D) two home runs
168. Babe Ruth could produce
237. Trade allows countries to consume more than their ability to produce.
238. Employing comparative advantage increases the total satisfaction with what's produced,
but not the total amount of what's produced.
239. If J