ECO 1002 Lecture Notes - Lecture 1: Demand Curve, Absolute Advantage, Unemployment Benefits

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28 Sep 2016

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Opportunity cost of something is the highest value alternative that must be given up to get it. Ex: going to a live concert (time, money) To make a choice at the margin: you evaluate the consequences of making incremental changes in the use of your time. The benefit from pursuing an incremental increase in an activity is the marginal benefit. The opportunity cost of pursing an incremental increase in an activity is it"s cost. A person with comparative advantage has a lower opportunity cost to do the activity. A person with absolute advantage is more productive than others. Ex: in an hour jim can catch 10 pounds of tuna or pick 10 pounds of oranges in an hour zeb can catch 10 pounds of tuna or pick 20 pound of oranges. One who has the lower opportunity cost has the comparative advantage. Higher the price, prices supply high gain more revenue.

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two of students of BSI semester I are friends.they spend most of their time studying but are planning to leave for their hometown in vacations for some other re-greational activities after the competition of final term examination which is going to hold in mid febraury.Maha claims that she could collect 10 oranges or can catch one fish per hour from pond besides their hometown in village while khadija claims that she could collect 2 oranges or 2 fish per 2 hours.what is the opportunity cost of catching fish for both .who has comparative advantage and who has absolute advantage in catching fish.

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Suppose Gilligan and Marianne are shipwrecked on opposite sides of an uncharted desert isle. They catch fish and pick berries to survive, using the 12 hours per day of available daylight. An economist hidden in the bushes observes the following rates of food production:

Castaway 1 Quart Berries 1 Fish

Marianne 1 hour 1 hour

Gilligan 1.5 hours 3 hours

Question 21 (4 points): Does either of our two castaways have an absolute advantage in berry picking? How about in fishing?

___________________________________________________________________________

Now imagine that Gilligan and Marianne meet one day and compare their production possibilities. They decide to combine their efforts, and to take advantage of specialization and trade to increase their production and consumption.

Question 22 (8 points): Calculate the opportunity costs for each of our castaways:

Opportunity Cost of:

1 Quart Berries 1 Fish

Marianne ____________ ________

Gilligan ____________ ________

Question 23 (4 points): Who has the comparative advantage in fishing? How about berry picking?

_______________________________________________________________________________

Question 24 (4 points): How might the two castaways divide their efforts to increase production?

_______________________________________________________________________________

1. The cost-benefit approach to deciding whether or not to undertake any activity argues that you should engage in the activity if:
a. The marginal cost of the activity exceeds the marginal benefit of the activity.
b. The marginal benefit of the activity exceeds the marginal cost of the activity.
c. There are benefits associated with the activity
d. There are costs associated with the activity

2. In the circular flow model, the household sector:
a. Demand goods and services in output markets, while the business sector supplies them.
b. Supplies goods and services in output markets, while the business sector demands them.
c. Demands and supplies goods and services in output markets.
d. Neither demands nor supplies goods and services in output markets.

3. In resource markets, households operate on the ________ side and business firms operate on the ______ side; these activities represent ______for households and _______ for business firms.
a. Demand; supply; income; revenue
b. Demand; supply; expenditures; revenue
c. Supply; demand; expenditures; costs
d. Supply; demand; income; costs

4. Ice cream sales and the incidence of polio were strongly correlated prior to the development of the polio vaccine. Assuming that eating ice cream caused polio is an example of the:
a. Fallacy of composition
b. Fallacy of division
c. Fallacy of false cause
d. Fallacy of ceteris paribus

5. Assuming that everyone is better off when a bridge is built in Alaska to serve a small community is an example of the:
a. Fallacy of composition
b. Fallacy of division
c. Fallacy of false cause
d. Fallacy of ceteris paribus

6. A production possibilities frontier for two outputs is drawn assuming that:
a. Opportunity cost is fixed, but the quantity and quality of resources changes
b. Both outputs use the same quantity of each resource, but the technology differs
c. The amount of resources currently available for production is fixed
d. The technology available can only be applied to producing one of the outputs

7. When wants and needs exceed the resource available to satisfy them:
a. Scarcity exists and society must rely on the government to allocate resources.
b. Scarcity exists and society must rely on free markets to allocate resources.
c. Scarcity exists and decisions must be made about how to allocate limited resources among competing uses.
d. Scarcity does not exist so it is not necessary to allocate resources.

8. If Carl is able to produce a greater number of baskets per hour than Sheila, then:
a. Carl cannot have a comparative advantage in the production of baskets
b. Carl has an absolute advantage in the production of baskets
c. Sheila has an absolute advantage in the production of baskets
d. Sheila has a comparative advantage in the production of baskets

9. If Carl's opportunity cost per basket is 4 bowls, but Sheila's opportunity cost per basket is 3 bowls, then:
a. Carl has a comparative advantage in the production of baskets
b. Carl has an absolute advantage in the production of baskets
c. Sheila has an absolute advantage in the production of baskets
d. Sheila has a comparative advantage in the production of baskets

10. Which of the following is not an example of the factor of production or economic resource referred to as capital?
a. An office building
b. Computers used by a tax preparation business
c. Lawnmowers owned by a landscaping firm
d. Money used to start a new business.

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ECO 1002 Lecture Notes - Lecture 1: Demand Curve, Absolute Advantage, Unemployment Benefits

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