Acceptable logotypeECO 2030. Principles of Economics-Price Theory

Exam #1 Study Guide

The exam is worth 100 points.

Updated: 09/26/2008 02:12:25 PM

Key Terms:

Problems:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer Key:

Page 59

#3

  1. Pat's opportunity costs are 2 pizzas for each gallon and .5 gallons for each pizza. Kris' opportunity costs are 1.5 pizzas for each gallon and .66  gallons for each pizza. Pat has an absolute advantage in pizza and root beer. Pat has a comparative advantage in pizza (Kris has a comparative advantage in root beer).
  2. Pat will trade away pizza and Kris will trade away root beer.

Pages 85-86

#1

  1. supply falls
  2. demand falls
  3. demand rises (due to the expected future price increase), the used Caddy gets poor gas mileage so its demand falls

#3

  1. tastes change (or number of buyers increases), demand increases, P and Q both increase
  2. production costs rise, supply decreases, P increases and Q decreases
  3. technology improves, supply increases, P decreases and Q increases
  4. the price of a substitute rises, demand increases, P and Q both increase

#7

  1. supply decreases, P increases and Q decreases
  2. demand decreases (if leather jackets and sweatshirts are substitutes), P and Q both decrease
  3. demand increases, P and Q both increase
  4. supply increases, P decreases and Q increases