1. When two people involved in an exchange say thank you afterwards, they are merely being polite. _______ (True/False)
2. Consider a transaction in which a consumer buys a book for $15. The value of the book to the buyer is at least $ _______, and the cost of producing the book is no more than $ _______.
3. Arrow up or down: Andy buys and eats one apple per day, and smacks his lips in appreciation as he eats it. The greater his satisfaction with the exchange of money for an apple, the larger the number of smacks. If the price of apples decreases, the numbers of smacks per apple will ______.
4. Sally sells one apple per day to Andy, and says ca-ching to show her satisfaction with the transaction. The greater her satisfaction with the exchange, the louder her ca-ching. If the price of apples decreases, her ca-ching will become ______ (louder/softer).
5. Should a Heart Surgeon Do Her Own Plumbing? A heart surgeon is skillful at unplugging arteries and rerouting the flow of blood, and these skills also make her a very skillful plumber. She can clear a clogged drain in six minutes, about 10 times faster than the most skillful plumber in town.
a. Should the surgeon clear her own clogged drains? Explain.
b. Suppose the surgeon earns $20 per minute in heart surgery and the best plumber in town charges $50 per hour. How much does the surgeon gain by hiring the plumber to clear a clogged drain?
6. Fishing versus Boat Building. Half the members of a fishing tribe catch two fish per day and half catch eight fish per day. A group of 10 members could build a boat for another tribe in one day and receive a payment of 40 fish for the boat.
a. Suppose the boat builders are drawn at random from the tribe. From the tribe s perspective, what is the expected cost of building the boat?
b. How could the tribe decrease the cost of building the boat, thus making it worthwhile?
7. Solving a Tree Cutting Problem. Consider a hilly neighborhood where large trees provide shade but also block views. When a resident announces plans to cut down several trees to improve her view, her neighbors object and announce plans to block the tree cutting. One week later, the trees are gone, but everyone is happy. Use the principle of voluntary exchange to explain what happened.