ECO 1104 Lecture Notes - Complementary Good, Inferior Good, Normal Good

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26 Jan 2014

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ECO 1104 Full Course Notes

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In autarky, rancher has to give up 1 kg of meat for 2 kg potatoes. A 1-for-2 tradeoff (meat for potatoes) [initial output] Might start producing 12 kg of meat and 24 kg potatoes. Move to producing 12 kg potatoes and 18 kg meat. Exchange 5 kg of meat for 15 more kg of potatoes. Note the [gain 3 give up 1] tradeoff rather than the [gain 2 give up 1] tradeoff; its now more favourable. End up with 13 kg of meat and 27 kg of potatoes for a net gain of +1 kg meat and +3 kg potatoes [final consumption] In other words, the rancher has the absolute advantage in the production of both goods. Chapter 4 the market forces of supply and demand. Considered the bread and butter of microeconomics. Purpose: to analyze the allocation of the production of goods and services across industries of the economy.

Related Questions

5. Terms of trade

Suppose that France and Denmark both produce oil and wine. France's opportunity cost of producing a bottle of wine is 5 barrels of oil while Denmark's opportunity cost of producing a bottle of wine is 10 barrels of oil.

1.By comparing the opportunity cost of producing wine in the two countries, you can tell that ( Denmark, France) has a comparative advantage in the production of wine and ( France, Denmark) has a comparative advantage in the production of oil.

2.Suppose that France and Denmark consider trading wine and oil with each other. France can gain from specialization and trade as long as it receives more than ( 1 barrel, 1/10 barrel, 1/5 barrel, 5 barrels, 10 barrels) of oil for each bottle of wine it exports to Denmark. Similarly, Denmark can gain from trade as long as it receives more than ( 1 barrel, 1/10 barrel , 1/5 barrel, 5 barrel, 10 barrels) of wine for each barrel of oil it exports to France.

3.Based on your answer to the last question, which of the following terms of trade (that is, price of wine in terms of oil) would allow both Denmark and France to gain from trade? Check all that apply.

A.12 barrels of oil per bottle of wine

B.2 barrels of oil per bottle of wine

C.6 barrels of oil per bottle of wine

D.9 barrels of oil per bottle of wine

A bowed out PPF reflects which of the following ideas?

i.increasing opportunity cost

ii. resources are not equally productive in all activities

iii. prices of goods increase over time

		I only
		I and iii
		ii and iii
		I and ii

1 point

QUESTION 2

With no international trade, a country ________ consume at a point outside of its PPF; with international trade, a country ________ consume at a point outside of its PPF.

		can; cannot
		cannot; can
		cannot; cannot
		can; can

1 point

QUESTION 3

If the production possibilities frontier between two goods is a straight line, then the

		the line does not qualify as a production possibilities frontier because the unattainable production points are too close to the inefficient production points.
		opportunity cost is not a ratio.
		increasing opportunity costs.
		resources are equally productive in both goods.

1 point

QUESTION 4

As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?

		It might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		It decreases.
		It increases.
		It remains constant.

1 point

QUESTION 5

"Comparative advantage" is defined as a situation in which one person can produce

		more of a good than another person.
		a good for a lower dollar cost than another person.
		a good for a lower opportunity cost than another person.
		more of all goods than another person.

1 point

QUESTION 6

When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost

		increases.
		decreases.
		might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		remains constant.

1 point

QUESTION 7

A bowed out production possibility frontier shows that the

		opportunity cost relationship is linear.
		the opportunity cost of a good is constant as more of the good is produced.
		the opportunity cost of a good increase as more of the good is produced.
		the opportunity cost of a good decrease as more of the good is produced.

1 point

QUESTION 8

Which of the following statements is correct?

		The production possibilities frontier shows that there are no limits to production.
		Any point on or within the PPF is production efficient.
		If capital is idle, the economy is producing at its full potential.
		A tradeoff is a limit that forces an exchange or a substitution of one thing for something else.

1 point

QUESTION 9

A major earthquake occurs in the central part of the United States. What impact would this have on the nation's production possibilities frontier and why?

		A tradeoff would occur to replace the resources and goods destroyed.
		It would shift inward because some of the nation's resources, such as capital and labor, would be destroyed.
		It would shift outward because unemployment would be reduced.
		Nothing would happen because the nation would still have the same capabilities.

1 point

QUESTION 10

When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods

		must increase.
		must decrease.
		must remain the same.
		must change but they might increase or decrease.

1 point

QUESTION 11

Moving along a country's PPF, a reasonable opportunity costs increase is that

		unemployment increases as a country produce more and more of one good.
		unemployment decreases as a country produces more and more of one good.
		some resources are better suited for producing one good rather than the other.
		technology declines as a country produce more and more of one good.

1 point

QUESTION 12

A reason the production possibilities frontier exists is

		scarcity of resources and unlimited technology.
		unemployment.
		scarcity of resources.
		unlimited resources and technology.

1 point

QUESTION 13

Moving from one point to another on a production possibilities frontier implies

		increasing the production of one good and decreasing the production of another.
		increasing the production of both goods.
		decreasing the production of both goods.
		holding the production levels of both goods constant.

1 point

QUESTION 14

Specialization and trade make a country better off because with trade the country can consume at a point

		outside its production possibilities frontier.
		on its trading partner's production possibilities frontier.
		inside its production possibilities frontier.
		on its production possibilities frontier.

1 point

QUESTION 15

The production possibilities frontier is the

		the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing.
		the minimum output that can be produced when resources are used inefficiently.
		the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.
		maximum output that can be produced at an opportunity cost of zero.

1 point

QUESTION 16

The opportunity cost of economic growth is ________ and the benefit of economic growth is ________.

		decreased current consumption; decreased future consumption
		decreased current consumption; increased future consumption
		increased current consumption; increased future consumption
		increased current consumption; decreased future consumption

1 point

QUESTION 17

In terms of a nation's production possibilities frontier, what impact does international trade have?

		International trade shifts the nation's production possibilities frontier outward.
		International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported.
		International trade shifts the nation's production possibilities frontier inward.
		International trade allows the nation to consume at a point outside its production possibilities frontier.

1 point

QUESTION 18

The production possibilities frontier illustrates the

		goods and services that people want.
		limits to people's wants.
		resources the economy possesses, but not it is the level of technology.
		maximum combinations of goods and services that can be produced.

1 point

QUESTION 19

As we move along the production possibilities frontier,

		the possibilities of tradeoffs diminish.
		the production of one good increases as the production of the other good decreases.
		more of both goods can be produced.
		a tradeoff is not possible because nations need all goods.

1 point

QUESTION 20

What is the opportunity cost of economic growth?

		Eliminate scarcity
		Land.
		Capital goods.
		Consumption of goods.

1 point

QUESTION 21

Which of the following statements is correct?

i.As the economy grows, the opportunity costs of economic growth decrease.

ii. Economic growth has no opportunity cost.

iii. The opportunity cost of economic growth is current consumption forgone.

		ii only
		iii only
		I only
		I and iii

1 point

QUESTION 22

Does economic growth depend upon which of the following?

i. Increasing the quantity of labor.

ii. Lowering the prices of goods and services.

iii. Advancing technology.

		ii only.
		I only.
		I and iii.
		iii only.

1 point

QUESTION 23

When drawing a production possibilities frontier, which of the following is held constant?

		the amount of money in the economy
		the prices of goods and services
		the quantity of the goods and services that are produced
		the available factors of production and the state of technology

1 point

QUESTION 24

To increase its economic growth, a nation should

		encourage spending on goods and services.
		increase in current consumption.
		encourage education because that increases the quality of labor.
		limit the number of people in college because they produce nothing.

1 point

QUESTION 25

The opportunity cost of one more slice of pizza in terms of sodas is the

		some pizza slices we have to give up to get one extra soda.
		the total number of sodas that we have divided by the total number of pizza slices that we have.
		the total number of pizza slices that we have divided by the total number of sodas that we have.
		the number of sodas we have to give up to get one extra pizza slice.

jadecrow966

ConAgra's ill-fated price hike for Banquet dinners prompts creative cost-cutting and marketing moves

Gary M. Rodkin found out the hard way the perils of pushing up the price of a Banquet frozen dinner. When the chief executive of ConAgra Foods tried to recoup high commodity costs by hiking the list price of Banquet products in September, many retailers began charging up to $1.25 a meal. The response from shoppers used to pay $1? The cold shoulder.

A chastened Rodkin soon discovered why Banquet had become an $800 million brand for the $12 billion-a-year Omaha food company. "The key component for Banquet dinners--the key attribute--is you've got to be at $1," he says. "Everything else pales in comparison to that."

The resulting sales drop forced ConAgra to peddle excess dinners to discounters and contributed to a 40% drop in its stock price in 2008. It also prompted Rodkin, 56, to move ConAgra further into austerity mode. He expects to cut $250 million in costs this fiscal year, which ends in May and trim close to the same amount next year. Some of the savings will come from moves such as centralizing purchasing and shipping. But Rodkin is also pushing for creative ways to hold down costs in ConAgra's 37 brands, which include Chef Boyardee, Marie Callender's, Hunt's, and Healthy Choice.

Rodkin's priority: bringing the cost of Banquet dinners back to a buck. ConAgra first tossed out pricey items such as barbecued chicken and country-fried pork in favor of grilled meat patties and rice and beans. It also shrank portion sizes while swapping in cheaper ingredients, such as mashed potatoes for brownies. What Rodkin didn't sacrifice was variety, with close to 100 Banquet-branded products.

ConAgra has made other moves on the cheap. It's reducing the number of can sizes in lines such as Hunt's and Van Camp's to save on manufacturing costs. The company is cutting investment in mature brands such as Egg Beaters and Hebrew National to free up money for growing lines such as Orville Redenbacher's popcorn. It has innovated at low cost by adapting the packaging of the hit line Healthy Choice Cafe Steamers for Marie Callender's frozen meals. And it has increased the nutritional value of food products rarely hyped for health benefits, such as Chef Boyardee, by switching to "white whole wheat pasta"--at no extra expense. Andre Hawaux, who heads the consumer foods unit, says customers want better food, but they're not willing to pay more.

For Rodkin, who came from PepsiCo in 2005, managing ConAgra has been a rocky affair. Less than a year after he arrived, his Peter Pan line sickened hundreds of people with salmonella, leading to a massive recall. (Peter Pan is not implicated in the latest episode of tainted peanut butter.) Critics say he hasn't moved fast enough to ditch marginal brands such as Crunch 'n Munch, Andy Capp's fries, and Patio Mexican foods. Gimme Credit analyst B. Craig Hutson notes the stock has shrunk by a third under Rodkin, calling his performance "disappointing despite many promises of a turnaround."

At least customers are now responding to Rodkin's efforts to keep down the cost of Banquet dinners. Citigroup analyst David Driscoll says ConAgra is well-positioned now. "Where else can you find dinner for 99 cents?"

PHOTO (COLOR): Rodkin shrank portions and cut ingredient costs; now buyers are coming back

~~~~~~~~

By Joseph Weber

2. Read the article "Over a Buck for Dinner? Outrageous" (Business Week March 9, 2009, p. 57) and apply S&D analysis to answer the following questions.

a. The "sales drop" described in the third paragraph refers to a decrease in ____________________ (D/Qd). The "excess dinners" that ConAgra had to peddle to discounters (3rd paragraph) refers to a ______________________ (shortage / surplus).

b. Rodkin's "priority" described in the 4th paragraph is intended to shift which side of his market: S? or D? And which way: right? or left?

c. Boxed meals and canned soup are they normal goods, or inferior? Explain. When the economy expands, will it be a boost to the makers of these items or a drag?

azuredonkey335

ECO 1104 Lecture Notes - Complementary Good, Inferior Good, Normal Good

ECO 1104 Full Course Notes

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