ECO 100 – James E. Pesando
Term Test 1 – October 18, 2013
Answer key 1. Russia can produce 50 cars per week or 200 computers per week. Japan can produce 75 cars per week or 300 computers per week. (14 marks)
(a) Calculate the opportunity costs of cars and computers for each country?
(b) What trade ratio(s) will allow Japan and Russia to both gain from trade?
Answer: The trade ratio must lie between the opportunity costs of both countries in order for them to gain from trade. Since the opportunity costs are the same, there is no trade ratio that will allow both countries to gain from trade.
(c)…show more content…
Thus, she would likely have ordered
TFU2. If the supply curve of a good is perfectly elastic and its demand curve is downward sloping, an increase in income will increase both consumer and producer surplus in the market for this good.
Answer: Producer surplus will not change no matter what (PS = 0), but the consumer surplus will rise if the good is normal and fall if the good is inferior.
MC: 4 marks each (40 marks)
MC1. The demand for a $20 Bill is:
Answer: c. Perfectly Elastic
MC2. The tuition for Eco 100 is $600 per semester, which is equivalent to $25 per lecture, and you have already paid this tuition before the start of the term. You spent 1 hour in your Eco 100 Lecture on Monday. Alternatively, you could have gone to work and earned $12, you could have watched Netflix, which you value at
$2, or you could have Skyped with your Mom, which you value at $20. Your marginal benefit of the Eco 100 lecture is:
At least $59
At least $45
At least $34
At least $25
At least $20
Answer: e. At least $20
MC3. The demand for coffee is unit elastic and coffee is a normal good. Tea is often consumed instead of coffee. If there is an decrease in the supply of tea:
a. The total revenue of coffee will decrease
b. The total revenue of