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8 Aug 2018

47) Suppose that George and Janet decide they will specialize - George in fish and Janet in coconuts - and then trade with each other for what they want to consume. The range of relative prices that will support complete specialization, expressed as the number of fish for the number of coconuts, is: A) 1 fish / 1 coconut to 1 fish/2 coconuts. B) 2 fish / 1 coconut to 1 fish/2 coconuts. C) 1 fish / 1 coconut to 1 fish/4 coconuts. D) 4 fish / 1 coconut to 1 fish/l coconut. E) 2 fish / 1 coconut to 1 fish / 1 coconut.

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Nestor Rutherford
Nestor RutherfordLv2
11 Aug 2018
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Related questions

Suppose that Spain and Sweden both produce fish and wine. Spain's opportunity cost of producing a bottle of wine is 4 pounds of fish while Sweden's opportunity cost of producing a bottle of wine is 10 pounds of fish.

By comparing the opportunity cost of producing wine in the two countries, you can tell that ( Spain or Sweden ) has a comparative advantage in the production of wine and ( Spain or Sweden ) has a comparative advantage in the production of fish.

Suppose that Spain and Sweden consider trading wine and fish with each other. Spain can gain from specialization and trade as long as it receives more than (1 or 1/10 or 1/4 or 4 or 10 pounds ) of fish for each bottle of wine it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than (1 or 1/10 or 1/4 or 4 or 10 bottles ) of wine for each pound of fish it exports to Spain.

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

A) 9 pounds of fish per bottle of wine

B) 1 pound of fish per bottle of wine

C) 16 pounds of fish per bottle of wine

D) 2 pounds of fish per bottle of wine

1. The following table provides the quantity of fish and coconuts that each individual can catch or gather in one hour.

           Coconuts Fish
Adam         6        2
Friday        6        4

a. Who has the absolute advantage in catching fish?
b. What is Friday's opportunity cost of gathering one coconut?
c. Who has the comparative advantage in catching fish?

2. Classify each statement as either a normative economic statement or a positive economic statement.
a. As a person consumes more and more of a good, marginal utility declines.
b. The United States has the best health care system in the world.

3. Consider the market for the Apple iPod, a normal good, for the month of September. Record in the following table how the following event would affect the market for an iPod. Use the words increase, decrease, unchanged, and uncertain.

Event Supply Demand Equilibrium Price Equilibrium Quantity {this is the table}

There is a technological advance in the manufacture of an iPod.

4. You own an electronics company that supplies to local businesses. In a typical month, you sell 200 Dell laptops and 200 HPlaptops. HP estimates the price elasticity of demand for their laptops to be -1.5. Dell estimates that the cross-price elasticity of demand between their laptop computers and HP laptops is 0.80 (Monday's lecture will help you answer this part of the question). This month HP lowered the price of their computers by 5 percent. Based on this information, what would expect to happen to your sales of HP and Dell computers? (State whether this change is an increase or decrease and give the percentage change.)

HP _____________ of ______________%

Dell ______________ of ____________%

Given your answers above, estimate the number of HP and Dell computers you will sell this month.

HP:_______________ Dell:_____________________

Representative multiple-choice questions.

5. If there is a surplus of a product, its price:
a. is in equilibrium.
b. is below the equilibrium level.
c. will rise in the near future.
d. is above the equilibrium level.

6. Suppose that steak and potatoes are complements. Then, other things being equal, an increase in the supply of steak will lower its price and:
a. increase the demand for potatoes and increase the price of potatoes.
b. increase the demand for potatoes and decrease the price of potatoes.
c. decrease the demand for potatoes and increase the price of potatoes.
d. decrease the demand for potatoes and decrease the price of potatoes.

CLASS NOTES ARE LOCATED WHERE IT SAYS CLASS NOTES!

During the early 1700s, a sailing ship is wrecked on an uninhabited island in the Caribbean Sea. The passengers and crew survive but lose all their possessions. There is no source of fresh water on the island, but coconut palm trees are fairly abundant, and the survivors are able to drink milk harvested from coconuts. There are no mammals living on the island, but many birds roost there, and these become a source of meat. There are a number of mango trees that provide fruit. A long, tough form of sawgrass grows in a number of different places on the island. This grass can be woven into knee-length sleeveless shirts, which are the basic type of clothing for people of both genders. The people on this island have developed a simple system of direct market exchange. Currently, two mangos trade for five coconuts, six coconuts trade for a pound of meat, and three pounds of meat trade for four shirts.

1. Use a formula that was stated in class, and in my notes, to calculate the total number of distinct relative prices in the island’s economy. Note that when this formula is used to count relative prices, any given pair of goods is considered to have only one relative price. For example, if we count the price of a pound of meat in mangos as one relative price, then we don’t count the price of mangos in pounds of meat as a second relative price.

(Class Notes: In a barter economy with markets, each good should have a market price, per unit, in terms of each of the other goods: baskets of fish per bushel of apples, bags of coconuts per bushel of apples, etc. A price of this type – units of one good per unit of the other good – is called a relative price (alternatively, a barter price). If there are different goods traded in an economy, then there turn out to be relative prices for a merchant to keep track of, in each market he visits. Each of the n goods has unit prices: one for each of the other goods. We divide by two to avoid counting reciprocal duplicates: if it costs 2 bags of coconuts to buy a bushel of apples, then it costs 1/2 bushel of apples to buy a bag of coconuts, and so on. )

2. Use the price information you are given to calculate all the distinct relative prices. Remember that the prices we are interested in are unit prices. A unit price is the price of a single unit of one good in units of another good. For each pair of goods, use the order that produces the highest unit price. In the case of coconuts and shirts, for example, if the price of a shirt in coconuts is higher than the price of a coconut in shirts, then report the first price but not the second one. Note: In calculating unit prices, don’t worry about issues of divisibility. Assume that any good can be divided in any way, so that fractions or decimals can be components of unit prices.

3. For each relative price you just calculated, calculate the relative price if the order of the two items is switched. (In the scenario above, for example, you would now calculate the price of a coconut in shirts.) What very simple formula can you use to do this? Explain briefly.

4. Now suppose the people on this island start using mangos as money. The relative prices on the island do not change, and the absolute prices are consistent with them. a. Use a formula stated in class, and in my notes, to calculate the total number of absolute prices in the island’s economy. b. Report these absolute prices.

Class Notes: ( In a monetary economy, in contrast, each good has a single absolute price (alternatively, a money price), which is its unit price in terms of money: dollars per bushel of apples, etc. If we assume that one of the n goods is used as money, then a merchant only needs to keep track of absolute prices. As long as there are more than two different goods ( ), it turns out that , and the difference between these two numbers gets very big as n gets large. Even if there are only 10 different goods, then there are 45 relative prices and only 9 absolute prices. And if there are 100 different goods, which is a more realistic number, then there are 99 absolute prices but almost 5000 relative prices.)

5. Comment briefly on the potential advantages and disadvantages of using mangos as money, using our list of the desirable properties of money as a guide.

6. Suppose you are a merchant on this island, where mangos are used as money in the market (see Item 4 above). A competing merchant who dislikes using money in transactions is willing to trade coconuts for shirts (or vice-versa) directly, at a rate of five coconuts per shirt. Explain, carefully and completely, how you could use this merchant’s willingness to trade these two goods, at this rate, in order to make a profit of one unit of money for yourself by (1) using money to buy units of a good in the market, (2) trading those units of the good to this merchant, in exchange for units of another good, and (3) selling those units in the market for money. Identify the items traded and the quantities, and verify the amount of the profit. Finally, explain what you would need to do in order to make a larger profit (double, for example).

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