Question Quiz #2 (Lec 005) 1. In one hour, Sue can produce 50 caps or 10

04 Jun Question Quiz #2 (Lec 005) 1. In one hour, Sue can produce 50 caps or 10

Question

Quiz #2 (Lec 005)
1. In one hour, Sue can produce 50 caps or 10 jackets and Tessa can produce 70 caps or 7 jackets. Sue’s opportunity cost of producing a cap is ________ jackets and Tessa’s opportunity cost of producing a cap is ________ jackets. ________ has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 caps, ________.

a. 0.2; 0.10; Sue; both Sue and Tessa gain

b. 0.2; 0.10; Sue; Tessa gains but Sue loses

c. 0.2; 0.10; Tessa; both Sue and Tessa gain

d. 5.0; 10.0; Tessa; Sue loses but Tessa gains

e. 5.0; 10.0; Sue; both Sue and Tessa gain

Trade can make every one better off if two parties specialize in producing goods where they have comparative advantage.

Caps

Jackets

Sue

50

10

0.20

5

Tessa

70

7

0.10

10

Comparative advantage: Tessa – caps, Sue – jacketsà both gain

2. Which one of the following events shifts the demand curve for grape jelly to the right?

a. an increase in income if grape jelly is a normal good

b. a decrease in the price of strawberry preserves, a substitute for grape jelly

c. a decrease in the price of grape jelly (quantity demanded is affected not demand)

d. a decrease in the population

e. an increase in the price of peanut butter, a complement of grape jelly

Factors affecting the demand curve:

i.income

ii.prices of related goods (substitutes/complements)

iii.population

iv.taste/preference; weather

v.expected future price

3. The demand curve shifts downward to the right because

a. an increase in income leads to increased consumption

b. of the law of supply

c. of the law of demand

d. of comparative advantage

e. as income rises, the quantity demanded decreases

4. An increase in the price of ground beef will

a. Increase the demand for chicken, a substitute for beef.

b. Increase the demand for hamburger buns, a complement for beef.

c. Increase the quantity demanded of ground beef.

d. Decrease the quantity demanded of ground beef.

e. Both A and D.

5. The price of good A rises, and the demand curve for good B shifts leftward. We can conclude that

a. A and B are complements.

b. B is a normal good.

c. B is an inferior good.

d. A and B are substitutes.

e. A and B are complements in production.

Substitute

Complement

A

B

A

B

? PA

? QB

? PA

? QB

? PA

? QB

? PA

? QB