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Suppose workers in Canada and the United States can produce either hockey sticks or baseball bats. Productivity at each activity is the following:
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| | Sticks per hour | Bats per hour |
|---|
| Canada | 3 | 3 | | United States | 4 | 6 |
Can mutually beneficial trade occur in this case? If so, what will be the pattern of trade? If not, why not?
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| | Sticks per hour | Bats per hour |
|---|
| Canada | 1/1= 1 | 1/1= 1 | | United States | 6/4= 1.5 | 4/6= 2/3 |
- Canada has the comparative advantage in producing hockey sticks.
- USA has the comparative advantage in producing baseball bats.
Therefore, mutually beneficial trade can occur
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Suppose workers in Canada and the United States can produce either hockey sticks or baseball bats. Productivity at each activity is the following:
|
| | Sticks per hour | Bats per hour |
|---|
| Canada | 3 | 3 | | United States | 4 | 6 |
If Canada and the United States specialize in production and engage in mutually beneficial trade, what will be the price of 1 hockey stick? (Hint: Answer will be a range.)
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Suppose workers in Canada and the United States can produce either hockey sticks or baseball bats. Productivity at each activity is the following:
|
| | Sticks per hour | Bats per hour |
|---|
| Canada | 3 | 3 | | United States | 4 | 6 |
If Canada and the United States specialize in production and engage in mutually beneficial trade, which groups in Canada will gain from trade? Why?
Which groups will be hurt by trade? Why?
If Canada and the United States specialize in production and engage in mutually beneficial trade, which groups in the United States will gain from trade? Why?
Which groups will be hurt by trade? Why?
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Suppose Jesse, a rational consumer, recently saw a painting for which she had a reservation price of $1200 but she did not purchase it. It can be concluded with certainty that actual market price of the painting was _____ $1200.
1. greater than
2. greater than or equal to
3. equal to
4. less than or equal to
5. less than
1. Greater than
$1200 is the maximum price she is willing to pay. Since she ended up not buying it, this means that the actual price was greater than $1200.
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Suppose the price of chairs _____. Everything else held constant, this will cause the _____ chairs to increase.
1. increases; demand for
2. decreases; demand for
3. increases; quantity demanded of
4. decreases; quantity demanded of
4) decreases; quantity demanded of
Solve backwards. We know it's quantity demanded because it deals with price. What will cause the quantity demand of chairs to increase? This would happen if the price decreases
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Suppose that books are a normal good. Suppose further that incomes in the country are increasing.
1. Which side (i.e., buyers or sellers) of the book market is directly affected (i.e., will notice the change and alter their behavior as a result) by this change?
2. How will their behavior change (i.e., buy/sell more or less)?
1. Buyers. This is because the buyer would know that their income is increasing. The seller has no idea that incomes are increasing.
2. This will increase the demand for books
(Be careful of the quantity demanded. Income is changing NOT the price of the books. If the price of the books changed, that would change the quantity demanded)
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Suppose limes and coconuts are complements in consumption. Suppose further that the price of limes decreases.
1. Which side of the coconut market is directly affected by this change?
2. How will their behavior change?
1. The buyers side is directly affected because its about consumption.
2. Demand for coconuts will increase. This is because it is referring to the complements in consumption, not the price (thus why its not quantity demanded)
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Suppose buyers expect the price of coffee to increase next week. Everything else held constant, this will cause the _____ coffee to _____ TODAY.
1. demand for; increase
2. demand for; decrease
3. quantity demanded of; increase
4. quantity demanded of; decrease
1. demand for; increase
The price didn't actually increase (yet). The buyers just thinks that the price will go up. This is why it's demand and not quantity demand. If they assume the price is going to increase, the demand will increase because they may not be able to afford it when the price eventually does go up. (i.e. buy it now while you still can)
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Suppose Tony, a rational painter, has just completed a new painting, Banana Head. Suppose further that a potential client adored the painting, made Tony an offer, and Tony sold it for $600. It can be concluded with certainty that Tony’s reservation price for Banana Head was _____ $600.
1. greater than
2. greater than or equal to
3. equal to
4. less than or equal to
5. less than
4. less than or equal to
Since he is a rational thinker, we know he will sell it for the maximum price. Since he eventually sold it for $600, we know that there were no offers over that. Therefore, the reservation price must've been less than the final price of $600 or equal the price of $600.
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Suppose the price of chairs decreases. Everything else held constant, this will cause the _____ of chairs to _____.
1. supply; increase
2. supply; decrease
3. quantity supplied; increase
4. quantity supplied; decrease
4. quantity supplied; decrease
Price change. This tells us its quantity supplied. Since the price decreases, the chairs will decrease since they aren't very profitable (hence why the price dropped).
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Suppose milk is the main input in the production of ice cream. Suppose further that the price of milk decreases.
1. Which side (i.e., buyers or sellers) of the ice cream market is directly affected (i.e., will notice the change and alter their behavior as a result) by this change?
2. How will their behavior change (i.e., buy/sell more or less)?
1. Sellers
2. Since price of milk decreased, they will produce/ supply more ice cream.
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Suppose worker productivity increases in the furniture industry.
1. Which side of the furniture market is directly affected by this change?
2. How will their behavior change?
1. The suppliers are directly affected
2. Productivity increased → Produce more → Sell more
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Suppose sellers expect the price of coffee to increase next week. Everything else held constant, this will cause the _____ coffee to _____ TODAY.
1. supply of; increase
2. supply of; decrease
3. quantity supplied of; increase
4. quantity supplied of; decrease
2. supply of; decreases
Since they expect the price to change (but it hasn't yet), we know it supply and not quantity supplied. The supply decreases because you expect the price next week to increase. You want to wait to sell coffee next week when you will have more potential customers (if you sell lots of coffee while it is still cheap, you may lose customers next week when it is more expensive).
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BUYERS
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| Cause | → | Effect |
|---|
| Change in actual price | → | | | Change in anything else | → | |
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| Cause | → | Effect |
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| Change in actual price | → | Change in Quantity Demanded (-) | | Change in anything else | → | Change in Demand |
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SELLERS
| Cause | →| Effect |
|
| ----- | ----- | ----- | | Change in actual price | → | | | Change in anything else | → | | |
SELLERS
|
| Cause | → | Effect |
|---|
| Change in actual price | → | Change in Quantity Supplied (+) | | Change in anything else | → | Change in Supply |
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