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Suppose Alain, a rational French scholar and tutor, is considering going to the movies tonight to see Last Year at Marienbad, tickets to which are priced at $10 each. To do this, he would have to cancel his weekly French tutoring session for which he would have been paid $50. Suppose further that Alain has purchased a non-refundable/non-exchangeable movie ticket and he estimates the pleasure from seeing the film is $55.
1) What is Alain’s benefit from going to the movie?
2) What is Alain’s opportunity cost of going to the movie?
3) What is Alain’s benefit from holding his tutoring session?
4) What is Alain’s opportunity cost of holding his tutoring session?
5) What is Alain’s sunk cost in making his decision?
F) Will Alain choose to attend the movie or hold his tutoring session? Why?
- 1) The benefit for going to the movie is $55 worth.
- 2) The opportunity cost of going to the movie is what he would get if he went to tutoring instead. So, $50
- 3) The benefit of going to tutoring is $50 worth.
- 4) The opportunity cost of going to tutoring is what he would get if he went to the movie instead. So, $55
- 5) (Net benefit of movie)= Benefit of seeing movie - Movie opportunity cost: 55-50= $5
(Net benefit of tutor)= 50-55= $-5
So, he will chose going to the movies.
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Given the production possibilities frontier shown, point p is _____ for Amanda.
1. attainable
2. unattainable
1. Attainable
It is attainable because it is within the scope of production possibilities frontier (PPF). Point q would not be attainable
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Given the production possibilities frontier shown, point r is _____ for Amanda.
1. efficient
2. inefficient
1. efficient
It is efficient because she used up all her resources (on the line). Point p would be inefficient.
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Answer true or false to the following statement. Engaging in trade with other countries allows the United States to consume bundles of goods and services outside of its production possibilities frontier.
1. True
2. False
1. True
(It is beneficial because its a trade)
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Bulgaria is said to have the _____ advantage over Romania in producing a good if Bulgaria produces _____ of the good per worker (productivity) hour than Romania does.
1. absolute; more
2. absolute; less
3. comparative; more
4. comparative; less
1. absolute, more
It is absolute because this question is about productivity. You want productivity in a company so thats why its more
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Bulgaria is said to have the _____ advantage over Romania in producing a good if Bulgaria has a _____ opportunity cost of producing the good than Romania does.
1. absolute; higher
2. absolute; lower
3. comparative; higher
4. comparative; lower
4. comparative; lower
Its comparative because its about opportunity cost. You want less cost so thats why its lower
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Opportunity Cost calculation:
- Opportunity cost of the good you get=
- Productivity of good given up/ Productivity of good you get
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1) Who has the absolute advantage in the production of bagels? Cookies? Why?
2) Who has the comparative advantage in the production of bagels? Cookies? Why?
3) Is mutually beneficial trade possible between Aurora and Eos? If so, how and why? If not, why not?
- 1) Aurora has the absolute advantage of producing bagels.
- Eos has the absolute advantage of producing cookies.
- (Absolute advantage=Who produces more?)
- 2)
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| | Bagels | Cookies |
|---|
| Auroa | 140/20=7 cookies per bagel | 1/7 bagel per cookie | | Eos | 150/15= 10 cookies per bagel | 1/10 bagel per cookie |
- So, Auroa has the comparative advantage of producing bagels because it costs less cookies per bagel.
- Eos has the comparative advantage of producing cookies because it costs less bagels per cookie
3) Yes, because
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Suppose Adrian and Nicky can spend their time sewing ties or altering pants. Their productivity at each activity is the following:
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| | Ties per hour | Pants per hour |
|---|
| Adrian | 4 | 12 | | Nicky | 7 | 14 |
1) Who has the absolute advantage in sewing ties? Altering pants? Why?
2) Who has the comparative advantage in sewing ties? Altering pants? Why?
1) Nicky has the absolute advantage of BOTH sewing ties AND altering pants. (Higher number)
- 2)
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| OPP. COST | Ties per hour | Pants per hour |
|---|
| Adrian | (12/4)= 3 | (1/3) | | Nicky | (2) | (1/2) |
- So, Nicky has the better comparative advantage for making ties because it costs less. Adrian has the better comparative advantage of producing pants because it costs less.
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Which of the following statements accurately describes the pattern of specialization and trade in the case of Adrian and Nicky?
1. Adrian will specialize in sewing ties, Nicky will specialize in altering pants, and mutually beneficial trade can occur.
2. Adrian will specialize in altering pants, Nicky will specialize in sewing ties, and mutually beneficial trade can occur.
3. Mutually beneficial trade cannot occur because Adrian is more productive than Nicky is at both activities.
4. Mutually beneficial trade cannot occur because Nicky is more productive than Adrian is at both activities.
2)
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Suppose Adrian and Nicky can spend their time sewing ties or altering pants. Their productivity at each activity is the following:
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| | Ties/ hour | Pants/ hour |
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| Adrian | 4 | 12 | | Nicky | 7 | 14 |
Suppose, on a particular eight-hour day, Adrian sewed 20 ties and altered 36 pairs of pants. On that day, was Adrian efficient or inefficient in his work? Why? Explain verbally and mathematically.
20/4= 5, 36/12= 3, 5+3= 8.
He is efficient because 8 hours is all for work.
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