Economics 101
Fall 2000
Practice Questions #1
Goal:
·
Provide
a review of introductory material.
·
Provide
a review of some basic math skills needed in the course.
·
Provide
questions about positive and normative, absolute and comparative advantage,
graphing and the interpretation of numerical data, solving two equations in two
unknowns, and assorted other topics.
1. Identify whether or not the following
statements are normative (N) or positive (P).
a.
The proposed tax cuts by the Republicans if approved by Congress and the
President will result in an increase in
spending by consumers since the tax
cuts will increase the disposable income
available to consumers.
b.
The proposed tax cuts should stimulate the economy resulting in higher
levels of employment, but no increase in
the level of inflation according to
some economists who have studied the
proposed tax cuts.
c.
The welfare revision of the past years has reduced welfare cases.
d.
The primary goal of the President with regard to the aggregate economy
should be the pursuit of high levels of
employment.
2.Graph
the following sets of equations. Each set of equations should be on its own
graph and each graph should have the x and y axis labeled, the solution for the
two equations identified (i.e., what value of x and y will satisfy both
equations) as Xe and Ye.
a.
Y =
2X + 10
Y = -5X + 2
b.
Y =
2X + 5
Y = -2X + 9
c.
X =
3Y + 15
X = -2Y + 5
d.
X =
2Y + 12
X = -3Y + 14
3.Solve
the sets of equations given in problem 2 algebraically. Make sure you show all
your work (i.e., do not plug the equations into a calculator to solve).
4.You
are given the following information sets and are asked to find the slope, the
y-intercept, and the equation for each set of information.
a. Two sets of (X, Y) points that
satisfy this equation are (2,4) and(6,8)
Slope =
y-intercept =
equation:
b. Two sets of (X, Y)
points that satisfy this equation are (5, 10) and (-10, 0)
Slope =
Y-Intercept =
Equation:
c. Two sets of (X, Y) points that satisfy this equation are (-4,
-10) and (4, -5)
Slope =
Y-Intercept =
Equation:
d. Two sets of (X, Y)
points that satisfy this equation are (0, 10) and (0, 20)
Slope =
Y-Intercept =
Equation:
5.
The figure gives a bowed out from the origin PPF with good Y on
the y axis and good X on the x axis. Points A, B, and C are on the PPF; points
D,E and F are interior to the PPF; and points G, H, and I are beyond
the
PPF boundary.
a. Which points are feasible and obtainable for the economy
represented in
the above graph?
b. Which points are infeasible and unobtainable for the economy
represented in the above graph?
c. Which points are efficient points for the economy represented
in the
above graph?
d. Production possibility frontiers are drawn with a bowed out
from the
origin shape and this shape leads us to
talk about the Law Of Increasing
Opportunity cost. Explain what this
means in your own words.
6. Use the following table to answer this
question.
Macroland
Production of consumer goods in 2000 Production of capital goods in 2000
1000
units 0 units
800 units 100
units
600
units 200 units
200
units 400 units
Assume that this table gives the general relationship between the
production of capital and consumer goods in Macroland for the year 2000. There
are other feasible points on the PPF of Macroland and the table only gives
several points that are possible.
a. What is the maximum amount of capital
good production possible in
the year 2000 in Macroland?
b. What is the slope of the PPF
represented in the above table?
c. Does this PPF represent increasing,
decreasing, or constant
opportunity cost?
d. If growth is your primary objective,
explain where you think this
economy should produce and what tradeoffs this choice might
represent for this economy.
7.
This question is one about absolute and comparative advantage. We will
simplify the problem by assuming that both individuals face linear production
possibility
frontiers and thus have constant opportunity cost with regard to the
production
of the goods that we will be discussing (note that constant does not
mean
equivalent opportunity cost).
Suppose that there are two individuals in
Macroland and each of them can
produce either food or entertainment.
Assume that the opportunity cost is
constant along the PPF.
Bob Sue
Food Entertainment Food
Entertainment
20 60 30 60
50 45 50 40
a. What is Bob's opportunity cost for one
more unit of entertainment?
b. What is Bob's opportunity cost for one
more unit of food?
c. What is Sue's opportunity cost for one
more unit of entertainment?
d. What is Sue's opportunity cost for one
more unit of food?
e. In order to achieve the highest level
of production, Sue should specialize
in producing _________________ while Bob specializes in producing
_____________________.
f. Bob
has an absolute advantage in producing _______________ and a comparative
advantage in producing ________________.
g. Sue has an absolute advantage in
producing _______________ and a comparative advantage in producing
__________________.
8. Judy can produce 2 fish in 3 hours of 5
loaves of bread in 2 hours. Mike can
produce
3 fish in 4 hours and 3 loaves of bread in 3 hours. Currently, Judy is
producing
8 fish and 30 loaves of bread while Mike is producing 9 fish and 12 loaves of bread. Judy and Mike are not
trading initially. Assume that Judy and Mike both have 24 hours a day that they
can work (i.e., they don't need to sleep).
a. What is the opportunity cost of producing
one more fish for Judy?
b. What
is the opportunity cost of producing one more loaf of bread for
Judy?
c. What is the opportunity cost of producing one more fish for
Mike? d. What
is the opportunity cost of producing one more loaf of bread for
Mike?
e. In a single day of 24 hours, who has the absolute advantage in producing
fish?
f. In a single day of 24 hours, who has
the comparative advantage in
producing fish?
g. Mike should specialize in producing
____________ while Judy
specializes in producing ______________.
h. If Mike and Judy both specialize, the maximum amount of fish
that can be produced is and the maximum amount of bread that can be produced is
_______________________.