ECON 1B03 Lecture Notes - Lecture 1: Invisible Hand, Tim Hortons, Opportunity Cost

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30 Apr 2017

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ECON 1B03 Full Course Notes

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Comparative advantage: if you have a lower opportunity cost than someone. Opportunity costs of each product for each country: Us: to get 10 corn, give up 15 potatoes to get 1 corn give up 1. 5 potatoes. Opportunity cost of 1 potato = 1/1. 5 corn = 0. 67 corn to get 30 corn, give up 20 potatoes to get 1 corn, give up 0. 67 potatoes. Opportunity cost of 1 corn = 0. 67 potatoes. Opportunity cost of 1 potato = 1/0. 67 corn = 1. 5 corn: does the opportunity cost of consumption goods increase, decrease, or stay the same as the productivity of these goods increases, opportunity cost of consumption goods increases. We have to give up more of our most productive capital goods" resources to make more consumption goods. When we start pulling our best capital good resources, we really see a drop in capital goods numbers at the expense of fewer and fewer consumption goods.

Related Questions

1) The following table shows the production capabilities for extra workers for New Zealand and Australia in potato and carrot harvesting.

Output per Additional Worker per Annum

	Potatoes	Carrots
	(tonnes)	(tonnes)

New Zealand	60	90

Australia	50	30

i) Identify which country has an absolute advantage in harvesting potatoes and which country has an absolute advantage in harvesting carrots.

ii) Based on the table above, provide the missing answers to the following questions as a ratio:

1) New Zealand must give up _____ tonnes of potatoes in order to produce one additional tonne of carrots.

2) Australia must give up _____ tonnes of potatoes in order to produce one additional tonne of carrots.

3) The opportunity cost in New Zealand of producing one tonne of potatoes is _____ tonnes of carrots.

4) The opportunity cost in Australia of producing one tonne of potatoes is _____ tonnes of carrots.

iii) Using the information from (ii), analyse whether there is a basis for trade between New Zealand and Australia. If there is, identify what products each country should produce and trade.

crimsonimpala955

1. Which of the following actions reflect self-interested behavior?
(i) Warren Buffett, one of the world's wealthiest individuals, donated more than $30 billion to humanitarian causes such as AIDS and tuberculosis initiatives.
(ii) Pfizer Inc., a private pharmaceutical company, sponsored a disease-management program for Florida's Medicaid patients with chronic illnesses such as asthma, diabetes and heart disease.
(iii) You agree to babysit your 8-year-old brother instead of going to a kick-boxing class.
(iv) You agree to babysit your 8-year-old brother instead of going to a kick-boxing class only if your mother pays you $8 an hour.
A. (iv) only
B. (ii) and (iii) only
C. All of the above actions except (iii)
D. All of the above actions

2. Unlimited wants and limited resources:
A. Can be overcome through innovation
B. Can be overcome by increasing wealth
C. Are not problems faced by wealthy industrialized nations
D. Necessitate choices about the goods to services to consume

3. The production possibilities frontier can be used to demonstrate which of the following?
(i) The best tradeoffs that individuals and societies should make
(ii) The tradeoffs forced on individuals and societies because of scarcity
(iii) The wealth maximizing output combination that an individual or society should choose
A. (i), (ii) and (ii)
B. (i) only
C. (ii) only
D. (iii) only

Figure 1-1 shows the production possibility frontier for the hypothetical country, Lindenderry, which produces only two goods: corn and automobiles. Assume that Lindenderry uses all its productive resources to their maximum capacity.

Figure 1-1

4. If Lindenderry is using its productive resources to their maximum capacity, it must be producing a combination of goods given by a point such as:
A. Point U, V or W
B. Point U, X or W
C. Point V, U or T
D. Point X

5. If Lindenderry is at point U, producing 1300 tons of corn and 34 million automobiles, what is the opportunity cost of an additional 11 million automobiles?
A. 1,100 tons of corn
B. 2,200 tons of corn
C. 200 tons of corn
D. 18.2 tons of corn

6. Suppose Lindenderry is at point S, producing 700 tons of corn and 56 million automobiles. What happens if it sacrifices 11 million automobiles?
A. It moves to point T and gains 400 tons of corn
B. It moves to point T and gains 1,110 tons of corn
C. It moves to point W and gains 700 tons of corn
D. It moves to point W and loses 11 million automobiles

7. Suppose the price of a banana is $0.50, the price of a can of soda is $1.00 and the price of a power bar is $1.50. What is the opportunity cost of a banana?
A. $0.50
B. 1/2 of a power bar
C. 1/3 of a can of soda
D. 1/2 can of soda or 1/3 of a power bar

8. Which of the following statements is false?
A. Mother Teresa faced trade-offs when deciding to help lepers in India rather than some other needy group
B. When the government funds research into cancer, it is able to avoid trade-offs because public funds are used rather than private funds
C. When you volunteer to help at a soup kitchen, you face an opportunity cost of your time
D. Economics brings tradeoffs to light but does not inform us of which trade-offs society should make

9. Which the following would be likely to raise your opportunity cost of going to college full-time?
(i) You have been offered a full-time job as wardrobe assistant to Paris Hilton that pays $60,000 per year.
(ii) You have been offered a merit scholarship that pays for two years of tuition.
(iii) Your landlord increases the rent on the apartment you are currently living in and will continue to live in even if you choose to attend college full-time.
(iv) An increase in the value of your college trust fund set up by your grandfather.
A. All of the above
B. All of the above except (ii)
C. (i) only
D. (i) and (iii) only

Suppose Galesburg produces only two goods: textiles and wheat. Table 1-1 shows the combinations of the two goods that Galesburg can produce if it uses all its productive resources to their maximum capacity.

Table 1-1

10. If Galesburg is currently producing at point H, what is the opportunity cost of obtaining an additional 100 bushels of wheat?
A. 360 bales of textiles
B. 240 bales of textiles
C. 60 bales of textiles
D. 20 bales of textiles

11. Suppose Galesburg is currently producing at point K and would like to move to point J. This movement:
A. Enables it to obtain an additional 20 bales of textiles and an additional 60 bushels of wheat
B. Requires a sacrifice of 60 bushels of wheat to obtain an additional 20 bales of textiles
C. Enables Galesburg to increase textile production with no reduction in wheat production
D. Suggests that point K is an inefficient choice for Galesburg

12. Suppose Galesburg is currently producing 60 bales of textiles and 200 bushels of wheat. Which of the following statements is true?
A. It is not possible to produce more wheat without sacrificing any textiles
B. It is possible to produce more wheat without sacrificing any textiles
C. The people of Galesburg do not value wheat as highly as they value textiles
D. The price of wheat must have fallen, so producers have reduced their supply of wheat

13. Suppose the people of Galesburg want to consume 50 bales of textiles and 310 bushels of wheat. Are they able to achieve this?
A. Yes, if they are willing to pay higher prices for these products to induce suppliers to produce them
B. No, at this time Galesburg has insufficient resources to satisfy its consumers' wants
C. Yes, if they rearrange their resource use so as to increase total output
D. No, Galesburg must increase its money supply in order to do so

14. The opportunity cost of an item is:
A. The price you paid to acquire that item
B. What you could have bought if you did not purchase that item
C. What it costs to make that item
D. Higher than what you paid to obtain that item

15. The opportunity cost of an item is:
A. The value of all the alternatives that must be given up in order to engage in any economic activity
B. The average value of all the alternatives that you forego in order to engage in any economic activity
C. The highest-valued alternative that must be given up in order to engage in any economic activity
D. The lowest-valued alternative that must be given up in order to engage in any economic activity

Show transcribed image text

1. Which of the following cannot be determined using a production possibility table?

What combination of outputs can be produced.
How much less of one output can be produced if more of another output is produced.
What combination of outputs is best.
How much output can be produced from a given level of inputs.

2. Internal government debt is:

debt owed by citizens to their government.
debt owed by one government to another government.
government debt owed to citizens.
government debt owed to foreigners.

3. In general, budget deficits should:

never be run since they slow economic growth over the long run.
never be run since they crowd out investment in the short run.
be run on a temporary basis whenever the economy is below potential output.
be run on a permanent basis since they can always be financed over and over again.

4. If taxes and government outlays were constant and did not vary with income, then:

passive deficits would increase.
passive deficits would not exist.
structural deficits would increase.
structural deficits would not exist.

5. If the debt of the federal government increases by $10 billion in one year, then the budget:

deficit in that year must be $10 billion.
surplus in that year must be $10 billion.
deficit in that year decreased by $10 billion.
surplus in that year increased by $10 billion.

6. Which of the following would make the impending Social Security problem worse?