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foundations of microeconomics

Questions and Answers of Foundations Of Microeconomics

Use the following opinion to work Problems 9 to 11 .Free Internet?Everyone should have free Internet access to education, news, jobs, and more.
Soybean (bushels per year) Chicken (pounds per year)500 and 0 400 and 300 200 and 500 0 and 600
5. The people of Foodland have 40 hours of labor a day to bake pizza and bread. Table 1 shows the maximum quantity of either pizza or bread that Foodland can bake with different quantities of labor.
Use Table 2 , which shows a farm’s production possibilities, to work Problems 6 and 7 .
Labor (hours) Pizzas Bread (loaves)0 0 or 0 10 30 or 10 20 50 or 20 30 60 or 30 40 65 or 40
4. Is the $208 million that electricity producers will spend to comply with the new rules part of the opportunity cost of producing electricity?Table 1
3. Is the $821 billion that the government would spend on incentive programs and compensation for higher energy prices part of the opportunity cost of producing electricity?
2. Is the $846 billion that electricity producers would pay for the right to emit greenhouse gasses part of the opportunity cost of producing electricity?
Representatives Waxman of California and Markey of Massachusetts proposed a law to limit greenhouse gas emissions from electricity generation and require electricity producers to generate a minimum
Use the following information to work Problems 1 to 4 .
Applications
Instructor Assignable Problems and
9. Read Eye on the Environment and describe a tradeoff faced when deciding how to generate electricity and whether to use wind power.
8. If Tom and Abby specialize and trade balls and rackets at the price of 15 balls per racket, what are Tom’s and Abby’s gains from trade?
7. What is Tom’s opportunity cost of producing a racket? What is Abby’s opportunity cost of a racket? Who has a comparative advantage in producing rackets? Who has a comparative advantage in
Figure 1 Figure 2
Some retail workers are re-employed building dams and wind farms.More people take early retirement.Drought devastates California’s economy.  
5. Describe how the opportunity cost of controlling malaria changes as more resources are used to reduce the number of malaria cases.
4. Make a graph of the production possibilities frontier with malaria control on the x-axis and other goods and services on the y-axis.
Figures 1 and 2 show Tom’s and Abby’s production possibilities. Tom uses all his resources and produces 2 rackets and 20 balls an hour. Abby uses all her resources and produces 2 rackets and 40
Source: The New York Times, March 4, 2008 The World Health Organization’s malaria chief says that it is too costly to try to fully eradicate the disease. He says that by using nets, medicine, and
3. What is the opportunity cost of producing an additional unit of entertainment? Explain how the opportunity cost of producing a unit of entertainment changes as more entertainment is produced.
2. Is an output of 50 units of entertainment and 50 units of good food attainable and efficient? With a production of 50 units of entertainment and 50 units of good food, do the people of Leisure
Use the following information to work Problems 4 and 5 .Malaria can be controlled
Table 2 Labor (hours) Entertainment (units) Good food (units)0 0 or 0 10 20 or 30 20 40 or 50 30 60 or 60 40 80 or 65 50 100 or 67
1. Table 1 shows the quantities of corn and beef that a farm can produce in a year. Draw a graph of the farm’s PPF. Mark on the graph. 
Use the following information to work Problems 2 and 3 .The people of Leisure Island have 50 hours of labor a day that can be used to produce entertainment and good food. Table 2 shows the maximum
Click here to open your MyEconLab Study Plan and work these interactive problems online.Table 1 Study Plan Problems and Applications Corn (bushels) Beef (pounds)250 and 0 200 and 300 100 and 500 0
Chapter Checkpoint
3.4 Explain how people gain from specialization and trade.Key Terms MyEconLab Key Terms Quiz Absolute advantage Comparative advantage Economic growth Production efficiency Production possibilities
3.3 Explain what makes production possibilities expand.
A person has a comparative advantage in an activity if he or she can perform that activity at a lower opportunity cost than someone else.People gain by increasing the production of the item in which
3.2 Calculate opportunity cost.
Explain and illustrate the concepts of scarcity, production efficiency, and tradeoff using the production possibilities frontier.3.1
Along the PPF, the opportunity cost of X (the item measured on the xaxis)is the decrease in Y (the item measured on the y-axis) divided by the increase in X.
When production is efficient—on the PPF—people face a tradeoff. If
Production at a point inside the PPF is inefficient.
Production at any point on the PPF achieves production efficiency.
The production possibilities frontier, PPF, describes the limits to what can be produced by using all the available resources efficiently.Points inside and on the PPF are attainable. Points outside
Click here to open your MyEconLab Study Plan and work these interactive problems online.Key Terms Quiz Chapter Summary Key Points
Watch Solutions Video: Specialization and Trade Solution to In the News The cost of producing sugar is less in Australia than in the United States, so Australia has a comparative advantage in
5 skis. They share this gain by trading.
20 snowboards and Tony makes 50 skis. Before specializing, they made 15 snowboards and 45 skis. By specializing, total output increases by 5 snowboards and
2. Patty has a comparative advantage in snowboards, so she specializes in snowboards. Tony has a comparative advantage in skis, so he specializes in skis. Patty makes
Tony’s comparative advantage is in skis. For each ski produced, Tony must forgo making 1/2 a snowboard, whereas Patty must forgo making 2 snowboards for a ski.So Tony’s opportunity cost of a ski
Patty’s opportunity cost of a snowboard is 1/2 a ski. Patty has a comparative advantage in snowboards because her opportunity cost of a snowboard is less than Tony’s.
Patty’s production possibilities show that to produce 10 more snowboards, she must produce 5 fewer skis. So
1. The person with a comparative advantage in snowboards is the one who has the lower opportunity cost of producing a snowboard. Tony’s production possibilities show that to produce 5 more
2. If Tony and Patty specialize and trade, what are the gains from trade?Solutions to Practice Problems
1. Who has a comparative advantage in producing snowboards? Who has a comparative advantage in
Which country has a comparative advantage in producing sugar? Explain why both the United States and Australia can gain from free trade in sugar.
Australian growers received the world price of 12¢ per pound.
2015, U.S. sugar producers received 22¢ per pound while
Sweet news after TPP sting Trans-Pacific Partnership (TPP) trade deal has kept tight restrictions on Australia’s sugar exports to the United States. In
Table 2 Patty’s Production Possibilities Source: The Land, October 8, 2015 Snowboards (per week) Skis (per week)20 and 0 10 and 5 0 and 10 In the News
Tony and Patty produce skis and snowboards. Tables 1 and 2 show their production possibilities. Each week, Tony produces 5 snowboards and 40 skis and Patty produces 10 snowboards and 5
Table 1 Tony’s Production Possibilities Practice Problems
Explain how people gain from specialization and trade.3.4
Americans pay less for goods and services and Indians earn higher incomes.Checkpoint 3.4
Looking beyond your own self-interest, are you going to be a voice that supports or opposes offshore outsourcing?You’ve learned in this chapter that regardless of whether outsourcing remains inside
MyEconLab Critical Thinking Exercise You are expanding your production possibilities by being in school and accumulating human capital.By discovering your comparative advantage, you will be able to
EYE on YOUR LIFE
4) Without specialization and trade, Liz and Joe produce at an inefficient point inside the economy’s PPF.Watch The Economy’s Production Possibilities
(3) When Liz and Joe specialize in their comparative advantage, the economy produces 30 salads and 30 smoothies at an efficient point on the economy’s PPF.
(2) When the economy produces more than 30 smoothies per hour, both Liz and Joe produce smoothies but only Joe produces salads.
(1) When the economy produces more than 30 salads per hour, both Liz and Joe produce salads but only Liz produces smoothies.
Figure 3.9 The Economy’s Production Possibilities
With specialization and trade, Liz and Joe get outside their individual PPFs, but they produce on the economy’s PPF. Also, despite Liz and Joe having constant opportunity costs, along the
The Economy’s Production Possibilities Frontier
Notice that the points C are outside Liz’s and Joe’s PPFs. Everyone gains and enjoys greater quantities of goods than they can produce on their own.
After trading, each moves to the point marked C. At these points, Liz has 20 smoothies and 20 salads, 5 more of each than she was producing only for herself. Joe has 10 smoothies and 10 salads, also
(3) They exchange smoothies for salads at a price of 2 salads per smoothie. After trade, each goes to point C—a point outside their individual PPFs. They each gain 5 salads and 5 smoothies—the
(2) Liz specializes in smoothies and Joe specializes in salads, so they each move to point B on their respective PPFs.
(1) Before trade, Liz and Joe each produce at point A on their respective PPFs.
Figure 3.8 The Gains from Specialization and Trade Watch The Gains from Specialization and Trade
Liz draws the graphs in Figure 3.8 to illustrate her idea. The blue PPF is Liz’s and the red PPF is Joe’s. They are each producing at the points marked A. Liz’s proposal is that they each
After the trade, Joe has 10 salads (the 30 he produces minus the 20 he sells to Liz) and the 10 smoothies that he buys from Liz. So Joe doubles the quantities of smoothies and salads he can sell. Liz
Trade at a price of 2 salads per smoothie (1/2 a smoothie per salad)enables both Liz and Joe to gain. Liz gets salads for 1/2 a smoothie each, which is less than the 1 smoothie that it costs her to
(d) After Trade Smoothies 20 10 Salads 20 10(e) Gains from Trade Smoothies +5 +5 Salads +5 +5
(c) Trade Smoothies sell 10 buy 10 Salads buy 20 sell 20
(b) Specialization Liz Joe Smoothies 30 0 Salads 0 30
(a) Before Trade Liz Joe Smoothies 15 5 Salads 15 5
Table 3.3 Liz and Joe Gain from Trade
hour. Liz stops making salads and produces 30 smoothies per hour. That is, they both specialize in producing the good in which they have a comparative advantage—see Table 3.3(b) . They then trade:
describes his own smaller business to Liz. When he explains how he divides his hour between making smoothies and salads, Liz’s eyes pop.“Have I got a deal for you!” she exclaims.
Liz and Joe run into each other in a bar, where Liz tells Joe about her smoothie business. Her only problem, she says, is that she wants to produce more because customers leave when her lines get too
Look at the opportunity costs of producing salads. For Liz, that opportunity cost is 1 smoothie. But for Joe, a salad costs only 1/5 of a smoothie. Because Joe’s opportunity cost of a salad is less
What about Joe? Doesn’t he have a comparative advantage at anything?He does as you’re about to see.Joe’s Comparative Advantage
Liz must forgo 1 salad while Joe must forgo 5 salads. So, because Liz forgoes fewer salads to make a smoothie, she has a comparative advantage in producing smoothies.
You’ve seen that Liz’s opportunity cost of a smoothie is 1 salad, whereas Joe’s opportunity cost of a smoothie is 5 salads. To produce 1 smoothie,
Liz’s Comparative Advantage In which of the two activities does Liz have a comparative advantage?Recall that comparative advantage is a situation in which one person’s opportunity cost of
You can see from the production numbers that Liz is three times as productive as Joe—her 15 smoothies and 15 salads an hour are three times Joe’s 5 smoothies and 5 salads. Liz is more productive
when individuals have constant opportunity cost. And as you will soon see, the economy’s PPF is outward-bowed even when individuals have constant opportunity cost and linear PPFs.Liz’s Greater
It is easier to identify comparative advantage and see the gains from trade
Watch Production Possibilities Frontiers The PPFs in Figure 3.7 contrast with the outward-bowed PPFs that you’ve seen earlier in this chapter, which capture the general rule that the opportunity
1 smoothie costs 5 salads.Liz can produce 30 smoothies per hour or 30 salads per hour or any other combination along her PPF in part (a). Liz chooses to produce 15 smoothies and 15 salads per
(b), Joe faces a PPF that enables him to produce 5 smoothies and 5 salads. On Liz’s PPF, 1 smoothie costs 1 salad. On Joe’s PPF,
(a), Liz faces a PPF that enables her to produce 15 smoothies and 15 salads. In part
Item Minutes to produce 1 Quantity per hour Smoothies 10 6 Salads 2 30 J• oe’s customers, like Liz’s, buy smoothies and salads in equal quantities.Joe spends 50 minutes of each hour making
Joe’s opportunity cost of producing 1 salad is 1/5 of a smoothie.Table 3.2 Joe’s Production Possibilities

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