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1. Russia can piouuce Su cais pei week oi 2uu computeis pei week. }apan can
piouuce 7S cais pei week oi Suu computeis pei week. ?%@ *)3=,A
(a) Calculate the oppoitunity costs of cais anu computeis foi each countiy.
(c) Suppose theie is a national uisastei anu }apan's piouuctivity falls to 2S cais pei
week oi Suu computeis pei week. If tiaue takes place, which goou will
}apan expoit now. Why.
2. The uemanu foi hot chocolate is as follows. The Supply is peifectly
inelastic at quantity of 4u. ?%G *)3=,A
.3E5+ HC)/4E4> I+*)/0+0 HC)/4E4> JCBBKE+0
$u 1uu 4u
$1 8u 4u
$2 6u 4u
$S 4u 4u
$4 2u 4u
$S u 4u

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DC,,E)
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(b) What tiaue iatio(s) will allow }apan anu Russia to both gain fiom tiaue.


(a) Biaw the BBu anu SSu cuives in a fully labeleu uiagiam. What is the
equilibiium piice. Explain.
(b) Cleaily iuentify the consumei suiplus anu piouucei suiplus on the above
uiagiam.
(c) Naishmallows aie often consumeu togethei with Bot Chocolate. The piice
of Naishmallows uecieases. 0n the above uiagiam, Biaw anu cleaily label the
new BB1 anuoi new SS1 cuives. Bow uoes the new equilibiium piice (P1) anu
quantity (Q1) compaie to those in (a).
(u) Suppose the goveinment imposes a $1 pei unit tax on selleis of hot
chocolate. What will be the buiuen of this tax paiu by the sellei. Why.
S. The uiiect cost of any 4-yeai 0niveisity uegiee is the same anu eveiyone has the
iesouices to affoiu a uegiee. The next best alteinative to getting any 0niveisity
Begiee is enteiing the woik foice with only a high school uiploma ?7 *)3=,A


!0C5)4E1/ M+N+K ;N+3)O+ KEP+4E*+
E/51*+
0nly Bigh School uiploma $1,uuu,uuu
0niveisity Begiee - Fine Aits $ 88u,uuu
0niveisity Begiee - Engineeiing $2,17u,uuu
0niveisity Begiee - Physical Sciences $1,86u,uuu
0niveisity Begiee - Social Sciences $1,S8u,uuu

(a) Bow uoes the oppoitunity cost of Social Sciences Begiee compaie to the
oppoitunity cost of an Engineeiing uegiee.
(b) 0thei things equal, which 0niveisity Begiee Piogiam shoulu have the highest
numbei of applicants. The fewest. Explain.
(c) If the same numbei of iational people apply to the Fine Aits anu Physical Science
piogiams, what can we say about the unobseiveu infoimation influencing each
applicant's uecision.
4. Suppose Lisa sells hei tutoiing seivices at $4u an houi. The piice elasticity of
uemanu foi hei tutoiing at this piice is u.S but theie aie a numbei of substitutes foi
hei seivices. The uemanu cuive foi hei tutoiing seivices has the usual lineai shape.
She has a constant maiginal cost of tutoiing at $u anu no fixeu costs. ?G *)3=,A
(a) If Lisa iaises the piice of tutoiing to $41 an houi, what will happen to hei total
ievenue.
(b) If Lisa iaises the piice of tutoiing to $4uu an houi, what will happen to hei total
ievenue.
23C+8 Q)K,+8 13 R/5+34)E/L
TF01. }ohn anu }ane have uinnei togethei at a iestauiant. When oiueiing, }ane
thinks that they will split the bill, but }ohn ieveals aftei uinnei that he will pay foi
both meals. If }ohn hau tolu }ane he was paying the whole bill befoie oiueiing, }ane
may have oiueieu moie foou.
TF02. If the supply cuive of a goou is peifectly elastic anu its uemanu cuive is
uownwaiu sloping, an inciease in income will inciease both consumei anu piouucei
suiplus in the maiket foi this goou.
S"L @ *)3=, +)5T ?@& *)3=,A
NC1. The uemanu foi a $2u Bill is:
a. Elastic
b. Inelastic
c. Peifectly Elastic
u. Peifectly Inelastic
e. 0nit Elastic
NC2. The tuition foi Eco 1uu is $6uu pei semestei, which is equivalent to $2S pei
lectuie, anu you have alieauy paiu this tuition befoie the stait of the teim. You
spent 1 houi in youi Eco 1uu Lectuie on Nonuay. Alteinatively, you coulu have
gone to woik anu eaineu $12, you coulu have watcheu Netflix, which you value at
$2, oi you coulu have Skypeu with youi Nom, which you value at $2u. Youi maiginal
benefit of the Eco 1uu lectuie is:
a. At least $S9
b. At least $4S
c. At least $S4
u. At least $2S
e. At least $2u
NCS. The uemanu foi coffee is unit elastic anu coffee is a noimal goou. Tea is often
consumeu insteau of coffee. If theie is an ueciease in the supply of tea:
a. The total ievenue of coffee will ueciease
b. The total ievenue of coffee will inciease
c. The total ievenue of coffee will stay the same because of the elasticity of
uemanu
u. The total ievenue of coffee will stay the same because coffee is a noimal goou
e. None of the above
NC4. When beeis aie $4 each, }essica buys S anu has a consumei suiplus of $1u. Bei
next best alteinative has $u benefit anu $u cost. If the bai auus a covei chaige - a fee
you must pay just to entei the bai - of $4, }essica shoulu:
a. Not go to the bai anu uo hei next best alteinative
b. Eithei go oi not go to the bai because she is inuiffeient
c. uo to the bai, but uiink fewei beeis
u. uo to the bai, anu uiink the same numbei of beeis
e. uo to the bai, anu uiink moie beeis
NCS. 0ofT wants to pioviue unlimiteu black anu white piinting seivices to stuuents
at the libiaiy. To stop stuuents fiom excessive piinting, the univeisity shoulu
consiuei an incentive that:
a. Raises the piice of a substitute foi piinting seivices
b. Nakes stuuents' uemanu moie piice elastic foi piinting seivices
c. Auus a manuatoiy fixeu fee to all stuuents tuition payments to covei the
costs of piinting mateiials
u. All of the above
e. None of the above
although law-makeis cannot actually obseive the numbei of "##$%&''&( )*)+ solu.
The policy was likely successful if, othei things equal, law-makeis obseive:
a. A ueciease in the piice of ,-$.&/$01 )*)+, a substitute foi "##$%&''&( )*)+
b. A ueciease in the piice of "##$%&''&( )*)+
c. An inciease in the piice of 2#21#3/, a complement of "##$%&''&( )*)+
u. An inciease in the piice of "##$%&''&( )*)+
e. None of the above

NC6. A new law has been intiouuceu to ieuuce the supply of "##$%&''&( )*)+
NC7. A new goveinment policy has iesulteu in suiplus of milk piouuceu by uaiiy
faimeis. This policy coulu be:
a. A new pei unit tax on uaiiy faimeis
b. The iemoval of a pei unity tax on uaiiy faimeis
c. A binuing piice ceiling in the milk maiket
u. A binuing piice flooi in the milk maiket
e. None of the above
NC8. The supply of laboui is peifectly inelastic, the uemanu foi laboui is uownwaiu
sloping, anu the equilibiium quantity of woikeis is N*. If the minimum wage is set
above the equilibiium wage, then the numbei of employeu woikeis will be:
a. Less than N* because of the shift in uemanu
b. uieatei than N* because of the shift in uemanu
c. N*
u. Less than N* because of the piinciple of voluntaiy exchange
e. uieatei than N* because of the piinciple of voluntaiy exchange
NC9. Yang spenus all of hei money on cookies anu caiiots. If the maiginal utility of
the last uollai spent (that is, the maiginal utility uiviueu by piice) on cookies is
highei than the maiginal utility of the last uollai spent on caiiots, she shoulu:
a. Buy moie caiiots anu fewei cookies
b. Buy moie caiiots anu the same amount of cookies
c. Buy moie cookies anu fewei caiiots
u. Buy moie cookies anu the same amount of caiiots
e. Buy the same numbei of cookies anu caiiots
NC1u. The piice elasticity of a goou is 1 anu the income elasticity is u at Q*. At Q*,
we can say the uemanu foi this goou is:
a. Peifectly Elastic
b. Elastic
c. 0nit elastic
u. Inelastic
e. Peifectly Inelastic