Lessons 1 and 2
1. Opportunity Cost
What is the opportunity cost of your going to college? List components of the opportunity cost. Be sure to include all costs, including the value of what you might otherwise have done with your time (including forgone leisure time, working) as well as the price of tuition, books, et cetera. [You do not have to turn in money amounts, but it may be useful for you to consider the value of your leisure time, forgone work, and so on.] What is the approximate percent of the opportunity cost each? What is the greatest cost of college?
2. Marginal Analysis
What do we mean by a “decision taken on the margin”? Define and give an example of an economic decision you make on a marginal basis. Can you think of a decision that is taken not on a marginal basis but on the basis of total cost or average cost?
3. Positive and Normative
Look at today’s Wall Street Journal. Provide two microeconomic statements and two macroeconomic statements (make sure to include references). Classify your statements as positive or normative. Explain why.
4. Incentives
Pick one of the behaviors below and explain what might act as incentives and disincentives. You can use the suggested Web site to do research. You may also refer to other sources of information as necessary.
A. For a seamstress to produce 15 dresses an hour instead of 10 dresses an hour
B. For a company to invest $1 billion in research on an anticancer drug
C. For a rancher in Wyoming to protect the local environment (refer to Sierra Club)
D. For an energy consumer to conserve electricity
• Lesson 3
5. Production Possibilities
A small farmer can grow both corn and beans on his farm. All the possible combinations of the amounts of each he can grow are summarized by the equation C = 300 – 2B, where C equals the quantity of corn and B equals the quantity of beans. This means that the following amounts are on the PPF.
Corn (MT) Beans (MT)
300 0
250 25
200 50
150 75
100 100
50 125
0 150
A. Graph the different amounts of corn and beans the farmer can grow if he uses all his land efficiently. What is this called in economics?
B. What is the farmer’s opportunity cost of corn at each level of production? His marginal cost?
C. What is the slope of the PPF you graphed in “A”? How is it related to the marginal costs?
6. Determining the Optimal Consumption Level
In the question above, what additional information would you need to determine at what level this farmer should produce?
7. Comparative Advantage
These graphs illustrate the production possibilities available to Barney and Betty with 8 hours of labor in their bakery.
A. According to the graph, what is the opportunity cost of 1 loaf of bread for Barney?
B. According to the graph, what is the opportunity cost of 1 pie for Betty?
C. Who has the absolute advantage in pie production? What about bread production?
D. Who has comparative advantage in pie production? Who has comparative advantage in bread production?
8.
Gains from Trade
You are comparing the skills of two people in mowing the lawn and painting the fence. Is it possible for one of the two persons to have an absolute advantage in neither skill? Is it possible for one of the two persons not to have a comparative advantage in either of the two skills?
