econ homework questions

Chapter 2 Homework

One point question:

1. If the marginal benefit of pizza declines with each slice you consume, why do you ever eat more than one slice?

Two point questions: (SHOW YOUR WORK)

For questions 2, 3, 4 and 5 you might want to take a good look at the first ten or so Chapter 2 Powerpoint slides involving Liz and Joe producing their smoothies and salads (instead of bats and baseballs)

2. Tom and Tessa are in the business of producing baseball bats and baseballs. Tom can produce 40 baseballs per hour or 4 bats per hour. Tessa can produce 60 baseballs per hour or 4 bats per hour.

a. Calculate Tom’s opportunity costs for producing baseballs and bats.

b. Calculate Tessa’s opportunity costs for producing baseballs and bats.

c. Who has the comparative advantage in producing baseballs?

d. Who has the comparative advantage in producing bats?

3. If Tom and Tessa specialize in producing the good in which each of them has a comparative advantage, and they trade 1 bat for 12 baseballs, who gains from the specialization and trade?

4. Suppose Tessa buys a new machine for making bats that enables her to make 20 bats per hour. (She can still only make 60 baseballs per hour.)

f. Now who has the comparative advantage in producing baseballs and bats?

5. Would Tom and Tessa still be willing to trade 1 bat for 12 baseballs?