Week 1 Exercises - Choices and Trade off Questions PDF

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Choices and Trade off Questions...

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Week 1 Exercises Introduction / The Economic Problem ECON7200 Economic Principles (M) Exercise 1 Suppose you win free tickets to a movie plus all you can eat at the snack bar for free. Would there be a cost to you to attend this movie. Explain.

Exercise 2 Suppose Hannah lives right next door to a Harvey Norman. She has to drive 20 minutes out of her way to get to a JB Hi-Fi. Last week, a SanDisk 32GB USB was $30 at Harvey Norman, and at JB Hi-Fi the same USB was only $20. Hannah decided to drive down to JB Hi-Fi to buy the cheaper USB. This week, the Apple MacBook Pro 15” is selling for $2094 at Harvey Norman and is $2084 at JB Hi-Fi. Hannah decides to buy the MacBook Pro at Harvey Norman. Discuss whether you think Hannah’s decisions are rational.

Exercise 3 Are the following statements true or false? Discuss. a. ‘Certain very talented people have comparative advantage in everything they do’ b. ‘If a certain trade is good for one person, it can’t be good for the person they are trading with’

Exercise 4 Ella and Peter live in Paradise and can spend their time writing songs or making movies. Their production possibilities with respect to the number of songs they can write or movies they can produce in a year are as presented in Tables 1 and 2 below.

Table 1

Table 2

Ella’s Production Possibilities

Peter’s Production Possibilities

songs

movies

songs

movies

30

0

15

0

20

1

10

2

10

2

5

4

0

3

0

6

a. Draw graphs of both Ella’s and Peter’s production possibility frontiers. b. What are the opportunity costs of writing a song at each output in the table for Ella and for Peter? c. What are the opportunity costs of making a movie at each output in the table for Ella and for Peter? d. If Ella and Peter each specialised in producing the output that they have comparative advantage in, who would produce songs and who would produce movies and how many of each would be made? e. Draw the joint production possibility frontier for the country of Paradise. In other words, if Ella and Peter work together to maximise their total production, what is their joint PPF?...