Kraft

Gallo

A.  Productivity of cheese production (include units)

B.  Productivity of wine production (include units)

C. Opportunity cost of cheese production (include units)

D.  Absolute Advantage in cheese production (check one box)

E.  Absolute Advantage in wine production (check one box)

F.  Comparative Advantage in cheese production (check one box)

G.  Comparative Advantage in wine production (check one box)

H.  If Kraft produces at point D and Gallo at point F before specialization and trade occur, what is the amount of wine and cheese they will produce in total together? 

I.  If Kraft and Gallo each specialize in their comparative advantage good, what is the total amount of wine and cheese they will both produce? 

J. At which labeled point in the diagram would Gallo and Kraft most likely reach if they specialized in their comparative advantage goods and traded to their mutual advantage?

K. What plausible market terms of trade (in gals/lb) could prevail to induce Kraft to increase its profit by specializing in cheese production?

What is (are) …. 

Bo

Jo

A.   …. their wine productivities?

B ….  their cheese productivities?

C.   … the equation of their PPF?

D.  … the opportunity cost of cheese production? (include units)

E.  What is the good in which each person specializes?

F.  What is the quantity of cheese produced with specialization (include units)

G.   .. the quantity of wine produced with specialization? (include units)

H.  Who has the absolute advantage in cheese production? (check one box)

F.  Who has the comparative Advantage in cheese production? (check one box)

G.   …  the quantity of cheese consumed at the only labeled point that could possibly be mutually advantageous? 

H.  ….   the terms of trade at the only labeled point that could possibly be mutually advantageous? 

A.  What is Maria’s lower orange productivity? Include units.

B.  What is Maria’s higher orange productivity?  Include units.

C. Indicate the joint PPF when Maria’s orange productivity is low. (eg. ABCF)

D. Indicate the joint PPF when Maria’s orange productivity is high.  (eg. ABCF)

E.  How many apples and oranges would the sisters consume if they produce their comparative advantage goods when Maria’s productivity is lower?   

Questions

Answers

1.  In the exchange model with production, the utility of both traders rises because of trade.  Is this an assumption or an implication of the model?

2.  In the exchange model with production, each person specializes in his comparative advantage good.  Is this an assumption or an implication of the model?

3.  In the exchange model with production, the only goods produced are apples and oranges.  Is this assumption more likely to be consequential to the result of mutual gains from trade or inconsequential?

4.  In the exchange model with production, the traders are assumed to have perfect information about their production possibilities.  Is this assumption more likely to be consequential to the result or mutual gains from trade or inconsequential?

5.  The exchange model with production assumes that trade occurs bilaterally, that is, between two individuals.  Is this assumption included more because it reflects reality or more because it simplifies the model?

6.  The exchange model with production assumes that the individuals have different productive capabilities.  Is this assumption included more because it reflects reality or more because it simplifies the model?

7. If Maria’s unit-labor requirement is 4 hours per pound of cheese and 8 hours per gallon of wine, while Vincent’s unit-labor requirement is 8 hours per pound of cheese and 6 hours per gallon of wine, who has the absolute advantage in cheese? Why?

8. If Maria’s unit-labor requirement is 4 hours per pound of cheese and 8 hours per gallon of wine, while Vincent’s unit-labor requirement is 8 hours per pound of cheese and 6 hours per gallon of wine, who has the absolute advantage in wine? Why?

9. If Maria’s unit-labor requirement is 4 hours per pound of cheese and 8 hours per gallon of wine, while Vincent’s unit-labor requirement is 8 hours per pound of cheese and 6 hours per gallon of wine, who has the comparative advantage in cheese? Why?

10. If Maria’s unit-labor requirement is 4 hours per pound of cheese and 8 hours per gallon of wine, while Vincent’s unit-labor requirement is 8 hours per pound of cheese and 6 hours per gallon of wine, who has the comparative advantage in wine? Why?

11. If Charlie’s productivity is 4 pounds of cheese per hour and 8 gallons of wine per hour, while Mario’s productivity is 4 pounds of cheese per hour and 12 gallons of wine per hour, who has the absolute advantage in cheese? Why?

12. If Charlie’s productivity is 4 pounds of cheese per hour and 8 gallons of wine per hour, while Mario’s productivity is 4 pounds of cheese per hour and 12 gallons of wine per hour, who has the comparative advantage in cheese? Why?

13. Always, Never or Sometimes, if a person has an absolute advantage in a good will she have a comparative advantage in that same good?

14. Yes or No, is it possible that one person does NOT have a comparative advantage in any good in a two good economy?

15. Always, Never or Sometimes, in a two good, two person economy, if one person has a comparative advantage in a good, will the other person have a comparative advantage in the other good?

16. Suppose a person’s opportunity cost of cheese production is 1 gal of wine.   If the terms of trade in the market is 2 gal per lb of cheese, should this person produce more or less cheese? Explain.

17.  If it takes a silversmith (1/6) hour of work to produce a silver fork, what is the worker’s productivity? (include units)

18.  If a worker’s unit-labor requirement is 2 hours per pound of cheese and 4 hours per gallon of wine, how much wine and cheese can he produce if he splits his 40-hour work week equally between the two products? (include units)

19. If Tom’s productivity is 20 spoons per day or 60 knives per day and Fred’s productivity is 30 spoons per day or 60 knives per day, who has the comparative advantage in spoons?  Why?

20. Name given to a second good that a consumer might buy when the first good is not available or is too expensive

21. Name given to a second good that a consumer might use at the same time as the first good.

22. Name two substitute goods or services for a magazine

23. Name two complement goods for a magazine

24. Of increase, decrease or stay the same, this would happen to demand for shrimp today if the price of shrimp rises.

25. Of increase, decrease or stay the same, this would happen to demand for shrimp today if the wages of shrimp workers rise.

26. Of increase, decrease or stay the same, this would happen to demand for gasoline today if consumers suddenly expect the price to increase substantially next week. 

27. Of increase, decrease or stay the same, this would happen to demand for big screen TVs today if consumers expect a recession to begin soon.

28. Latin phrase used to indicate that all other variables in the model are assumed to remain at their original values.

29. The demand curve for tea normally plots the quantity demanded at every price of coffee, price of tea, price of milk, or income level?

30. Of shift the curve or move along the curve, this would occur to the demand curve for peanuts if the price of popcorn increases

31. Of shift the curve or move along the curve, this would occur to the demand curve for popcorn if the price of popcorn increases

32. Name of the elasticity measure indicating the responsiveness of demand for a product to its own price changes

33. Name of the elasticity measure indicating the responsiveness of demand to another good’s price change

34. Name of the elasticity measure indicating the responsiveness of demand to a change in household income

35. Term used to describe the type of good that has a negative cross price elasticity of demand with another good, like water. 

36. Term used to describe the type of good that has a negative income elasticity of demand with another good, like water. 

37. The percentage change in the demand for Gatorade if the price elasticity of Gatorade demand is 0.5 and the price of Gatorade falls by 10%.

38.  Of positive, negative or zero, the value of the marginal revenue when demand is elastic.

39. Of increase, decrease or stay the same, the effect of an increase in price on total revenue in an industry if the price elasticity of demand is 1.5

40. Of increase, decrease or stay the same, the effect of an increase in price on total revenue in an industry if the price elasticity of demand is 1.5