Essay on eco100 term test1 with answer

2173 Words May 11th, 2014 9 Pages
ECO
100
–
James
E.
Pesando


Term
Test
1
–
October
18,
2013


Answer
key
 1.

 Russia
can
produce
50
cars
per
week
or
200
computers
per
week.

Japan
can
 produce 75
cars
per
week
or
300
computers
per
week.
(14
marks)


(a)
Calculate
the
opportunity
costs
of
cars
and
computers
for
each
country?


Cars

Russia

Japan


Computers


4
computers


4
computers


¼
cars

¼
cars


(b)
What
trade
ratio(s)
will
allow
Japan
and
Russia
to
both
gain
from
trade?



Answer:
The
trade
ratio
must
lie
between
the
opportunity
costs
of
both
countries
in
 order for
them
to
gain
from
trade.


Since
the
opportunity
costs
are
the
same,
 there is
no
trade
ratio
that
will
allow
both
countries
to
gain
from
trade.


(c)
…show more content…
Answer:
There
must
a
high
unobserved
MB
to
fine
arts
(ie.
other
things
are
not
 equal) or
no
rational
agent
would
chose
that
degree.




4.
Suppose
Lisa
sells
her
tutoring
services
at
$40
an
hour.

The
price
elasticity
of
 demand for
her
tutoring
at
this
price
is
0.3
but
there
are
a
number
of
substitutes
for
 her services.
The
demand
curve
for
her
tutoring
services
has
the
usual
linear
shape.

She
has
a
constant
marginal
cost
of
tutoring
at
$0
and
no
fixed
costs.

(6
marks)

(a)
If
Lisa
raises
the
price
of
tutoring
to
$41
an
hour,
what
will
happen
to
her
total
 revenue? Answer:
Because
the
DD
for
tutoring
is
price
inelastic,
small
increases
in
the
price
 will increase
her
total
revenue
despite
the
number
of
hours
sold
falling.


(b)
If
Lisa
raises
the
price
of
tutoring
to
$400
an
hour,
what
will
happen
to
her
total
 revenue? Answer:
Uncertain.

It
depends
on
the
price
elasticity
of
DD
at
P=$400
which
is
 sufficiently far
from
P=$40
that
we
can’t
assume
that
it
is
still
inelastic.


[points
of
interest:
(i)
elasticity
changes
along
a
linear
demand
curve.

(ii)
high
 number of
substitutes
imply
relative
price
elasticity].

True,
False,
or
Uncertain:



TFU1.
John
and
Jane
have
dinner
together
at
a
restaurant.

When
ordering,
Jane
 thinks that
they
will
split
the
bill,
but
John
reveals
after
dinner
that
he
will
pay
for
 both meals.

If
John
had
told
Jane
he
was
paying
the
whole
bill
before
ordering,
Jane

may

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