Question

1)In one month, Andrea can produce 80 apples or 80 bananas, while Tom can produce 60 apples or 100 bananas. Currently, Andrea is producing 40 apples and 40 bananas per month while Tom is making 30 apples and 50 bananas. If from now on, Andrea starts making nothing but apples and Tom makes nothing but bananas, and the two trade 35 apples for 45 bananas every month, what will be each person’s gain from trade?

a. 10 bananas and 10 apples.

b. 15 bananas and 15 apples.

c. 5 bananas and 5 apples.

d. 5 bananas and 10 apples.

e. 10 bananas and 5 apples.

2)Suppose that two brothers, Adam and Ben, share work around the house. In particular, each week they spend one hour cleaning bathrooms and washing the dishes. Suppose it takes Adam 10 minutes to clean a bathroom and 5 minutes to wash a dish, while it takes Ben 15 minutes to clean a bathroom and 15 minutes to wash a dish.

From this information, we can conclude that Adam’s opportunity cost of washing a dish is ____ ; Ben’s opportunity cost of washing a dish is ____ ; and that _____ has the comparative advantage in washing dishes and that _____ has the comparative advantage in cleaning bathrooms.

Select one:

a. 1 bathroom; 1/2 a bathroom; Ben; Adam

b. 1/2 a bathroom; 1 bathroom; Ben; Adam

c. 1 bathroom; 1/2 a bathroom; Adam; Ben.

d. 1/2 a bathroom; 1 bathroom; Adam; Ben

e. 1 bathroom; 2 bathrooms; Adam; Adam

3)

Suppose the price of sugar (a complement to cereal) rises. At the same time, suppose the price of wheat (which is used to make cereal) falls. Given these changes, in the market for cereal you should expect to see:

Select one:

a. A decrease in the equilibrium quantity of cereal, but it’s hard to say what will happen to the equilibrium price.

b. An increase in the equilibrium quantity of cereal, but it’s hard to say what will happen to the equilibrium price.

c. An increase in both the equilibrium price and quantity of cereal.

d. A decrease in both the equilibrium price and quantity of cereal

e. None of these answers are correct.

4)

If the cross-price elasticity of demand between Good A and Good B is > 0, the price of Good B increases, and the price elasticity of demand for Good B is inelastic, we can expect to see a ________ change in the quantity demanded for Good A.

Select one:

a. positive, zero

b. positive, small

c. negative, infinite

d. negative, one-for-one

e.  positive, large

5)

Consider two labor markets. In the first, the elasticity of supply is relatively elastic, while it is relatively inelastic in the latter. Imposing a minimum wage in each market would result in ________ unemployment in the first market and ________ unemployment in the second.

Select one:

a. lower; lower

b. higher; higher

c. unchanged; unchanged

d. lower; higher

e. higher; lower

6)

Producers will lose no producer surplus due to a tax if supply in their market is perfectly elastic because:

Select one:

a. consumers can effortlessly change their behaviour in response to the tax.

b. firms will decide not to pay the tax to the government

c. consumers will not bear the cost of the tax

d. the amount of the tax is relatively low.

e. producers can effortlessly change their behaviour in response to the tax.

7)

Suppose the demand for ham is relatively elastic and the supply of ham is relatively inelastic, while the demand for beer is relatively inelastic and the supply of beer is relatively elastic. If a tax is levied on the sellers of both of these commodities, we would expect that the burden of:

Select one:

a. both taxes would fall more heavily on the buyers than on the sellers.

b. both taxes would fall more heavily on the sellers than on the buyers.

c. the ham tax would fall more heavily on the buyers than on the sellers, and the burden of the beer tax would fall more heavily on the sellers than on the buyers.

d. the ham tax would fall more heavily on the sellers than on the buyers, and the burden of the beer tax would fall more heavily on the buyers than on the sellers.

e. there is not enough information to answer the question

8)

What is the incentive to create a black market when a binding price floor exists?

Select one:

a. A black market emerges because buyers are frustrated with shortages of the product.

b. A black market emerges because sellers have an incentive to charge a higher price on the illegal market.

c. A black market emerges because sellers want a market where they can sell higher-quality products.

d. A black market does not emerge; the price will eventually fall to the equilibrium price.

e. A black market emerges because sellers need a way to dispose of surplus product.

9)

Lila shares a house with two other people. She is a concert pianist and often practices at home. One roommate enjoys listening to her practice, but the other does not. For the roommate who enjoys listening to Lila play, this is an example of ________; for the other roommate, it is an example of ________.

Select one:

a. the tragedy of the commons; the third-party problem

b. a positive externality; a negative externality

c. a positive externality; the free-rider problem

d. the free-rider problem; the tragedy of the commons

e. a negative externality; a positive externality

Answer 1

Q1) Andrea's current production = 40 apples and 40 bananas

If she produces only apples, production = 80 apples and 0 bananas

Tom's current production = 30 apples and 50 bananas

If he produces only bananas, production = 0 apples and 100 bananas

Afte trade,

Andrea's basket = 45 apples and 45 bananas

Tom's basket = 35 apples and 55 banans

Thus, each of them of 5 banans and 5 apples extra.

Thus, the answer is (c) 5 apples and 5 bananas

Q2) Adam’s opportunity cost of washing a dish = 5/10 = 1/2 bathroom

Ben’s opportunity cost of washing a dish = 15/15 = 1 bathroom

Thus, we know that Adam has a lower opportunity cost of washing dishes and he will have a comparative advantage in dishes and Ben has a comparative advantage in bathroom

Thus the answer is (d)

Q3) Since the price of complementary goods has increased, the demand for cereals will fall.

Since the cost of input ha decreased, the supply fo cereals will increase.

Thus, at new equilibrium, prices will decline for sure but we can not say what will happen to quantity as it depends on the magnitude of the shift in supply and demand.

The answer is (e) none of the above.