Reference no: EM131018950

Practice Questions 1

I. In the following exercises, select one and only one answer.

1. Consider the following lines: Y = 10 - 2X and Y = X + 2. The intersection will be found at:
a. X = 1/3 and Y = 7/3
b. X = 8/3 and Y = 14/3
c. X = 15/3 and Y = 21/3
d. X = 22/3 and Y = 28/3
e. X = 29/3 and Y = 35/3

2. Consider the line defined by the following equation: X = 10 - 4Y. Let the horizontal axis be the X variable and the vertical axis be the Y variable. Then, the slope of the line (Y in terms of X) is:
a. 1/4
b. 4
c. -1/4
d. -4
e. It has no slope

Consider the following paragraph for questions 3 to 5:

Bart and Lisa are much older now and got jobs at Mc Donald's. They work ten hours per day. Bart can make 10 Big Mac's or 20 vanilla cones per hour. Lisa can make 5 Big Mac's or C vanilla cones per hour.

3. For Lisa to have a comparative advantage in making vanilla cones, C must be:
a. Greater than 20
b. Greater than 10
c. Greater than 5
d. Greater than 0
e. Lisa can never have a comparative advantage in making vanilla cones.

4. Assume now that C = 5. In that case, Bart has a comparative advantage in:
a. making Vanilla cones
b. making Big Mac
c. Both Vanilla cones and Big Mac making
d. Neither Vanilla cones nor Big Mac making
e. None of the above.

5. Mr. Burns, the manager at Mc Donald's, has decided that Bart and Lisa are going to make both vanilla cones and Big Mac's. Mr. Burns' decision may make sense only if the value of C is:
a. 10
b. 20
c. 50
d. 100
e. 200

II. In the following exercises, explain your work in detail.

Use the following table to answer question 6.

Animals trained per day:

	Elephants	Giraffes
Joan	2	2
Mary	4	1

6. Joan and Mary work at a Circus as animal trainers. The table above shows how many animals each of them can train in one day.
a. Draw the production possibilities frontiers (PPFs) for Joan and Mary with elephants on the horizontal axis and giraffes on the vertical axis. Assume each of them has 10 days.
b. Indicate the opportunity cost of training one giraffe for Mary. Show the opportunity cost of training one elephant for Mary.
c. Indicate the opportunity cost of training one elephant for Joan. Show the opportunity cost of training one giraffe for Joan.
d. Who has the comparative advantage in training giraffes? Who has the comparative advantage in training elephants?
e. Who has the absolute advantage in training giraffes? Who has the absolute advantage in training elephants?

Use the following table to answer question 7.

	Sweater	Car
Australia	5	8
Belgium	10	20

7. Australia and Belgium are two countries producing sweaters and cars. Both of them have 80 hours of labor. The table above shows the number of HOURS OF LABOR needed to produce one sweater or one car.
a. Draw the production possibilities frontiers (PPFs) for Australia and Belgium with cars on the horizontal axis and sweaters on the vertical axis.
b. Indicate the opportunity cost of producing one car both for Australia and Belgium.
c. Indicate the opportunity cost of producing one sweater both for Australia and Belgium.
d. Which country has the comparative advantage in producing cars? Which country has the comparative advantage in producing sweaters?
e. Which country has the absolute advantage in producing cars? Which country has the absolute advantage in producing sweaters?