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(ECON110)2009_s_quiz_ECON110_610.pdf
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ECON 110
Problem Set 1 Solutions

Chapter 1: Problem 4
a.
Yes, you faced a tradeoff. The tradeoff was between a higher test score and an evening youre your friends at the movies.

b.
The opportunity cost of going to the movies is the fall in your grade. That is the 20 points forgone from choosing to see the movie rather than study.


Chapter 1 Appendix: Problem 6
a.
To make a graph that shows the relationship between x and y, plot x on the x-axis and y on the y-axis. The relationship is negative because x and y move in opposite directions: As x increases, y decreases.

b.
The slope decreases as x increases. Slope is equal to the change in y divided by the change in x as we move along the curve. When x increases from 1 to 2 (a change of 1), y decreases from 24 to 22 (a change of .2), so the slope is .2. But when x increases from 4 to 5 (a change of 1), y decreases from 8 to 0 (a change of .8), so the slope is .8.

c.
The less expensive a good, the greater is the number of people who buy it. The higher the interest rate, the smaller is the number of people who take out home mortgages. The less expensive gasoline, the greater the distance car owners drive.


Chapter 2: Problem 4
a. The marginal benefit curve slopes downward. To draw the marginal benefit from sunscreen, plot the quantity of sunscreen on the x-
axis and the willingness to pay for sunscreen (that is, the number of pounds of food that they are willing to give up to get a gallon of sunscreen) on the y-axis.
b. The efficient quantity is 75 gallons a month. The efficient quantity to produce is such that the marginal benefit from the last gallon equals the opportunity cost of producing it. The marginal cost of a gallon of sunscreen is 2 pounds of food. The marginal benefit of the 75th gallon of sunscreen is 2 pounds of food. So the marginal benefit equals marginal cost when Sunland produces 75 gallons of sunscreen per month.
Chapter 2: Problems 6
a.
Toms opportunity cost of producing a ball is 4 bats/40 balls, or 0.10 bats per ball.

b.
Tessas opportunity cost of producing a ball is 4 bats/80 balls, or 0.05 bats per ball.

c.
Tessa has the comparative advantage in producing balls because her opportunity cost of a ball is lower than Toms opportunity cost.

d.
Both Tom and Tessa gain from the specialization and trade. Tom specializes in producing bats and Tessa specializes in producing balls. Tom produces 4 bats per hour and Tessa produces 80 balls, for total production of 4 bats


and 80 balls. If neither specialized and both spent half their time producing balls and the other half producing bats, Tom would produce 2 bats and 20 balls and Tessa would produce 2 bats and 40 balls. The total production would be 4 bats (2 from Tom and 2 from Tessa) and 60 balls (20 from Tom and 40 from Tessa). Specialization means that Tom can trade 2 bats for 30 balls and so have 2 bats and 30 balls, 10 more balls than the cas