Question

1. “Opportunity cost” in economics basically is what you have to give up to get something—not necessarily restricted to dollar amounts.  What is the opportunity cost of your going to college?  (Note that this is not necessarily something that you can just look up or copy from a friend—you need to think about it and the answers may very well be different for each student.  Also, I am not looking for any exact monetary calculation.)

2. Draw a production possibilities curve for food and clothing.  If you are operating on the curve, what is the opportunity cost of producing more clothing?  If you are on the curve, is it possible to increase production of one good without decreasing the production of the other?

3. What is the difference between absolute and comparative advantage?  If Country A has an absolute advantage in computers and food over Country B, Country A has a comparative advantage in computers and Country B has a comparative advantage in food, what should happen in terms of specialization and trade?

4. Why is the demand curve downward sloping?

5. What are two factors that would cause the demand curve to shift to the left?

6. Why is the supply curve upward sloping?

7. What are two factors that would cause the supply curve to shift to the right?

Answer 1

• If someone is going to college he gives up searching for a new job by which he could earn $150. So here the opportunity cost of going college is $150.
• 

the opportunity cost of producing more cloth is to sacrifice food. It is not possible to produce more of one good without decreasing another if operating on the PPF as resources are fully utilized when operating on the PPF.

• Absolute advantage shows the difference in productivity, who is more productive has an absolute advantage. Comparative advantage shows the difference in opportunity cost. Who needs lower opportunity cost has a comparative advantage. Both countries can have an absolute advantage in the same products but two countries can have a comparative advantage in different products. So if country A has a comparative advantage in computers country A should specialize in the computer. Country B has a comparative advantage in food so country B should specialize in food. Country A should export computer and import food from B after specialization.
• The demand curve is downward sloping because there is an inverse relationship between price and quantity demand.

Demand curve shifts left when demand decreases because of some factors other than the change in price. The following factors can be responsible. a) Price of substitute is decreased. b) Income is decreased. In both case consider the good is a normal good.

• The supply curve is upward sloping as there is a positive relationship between price and quantity supplied. When the price is increased quantity supply is increased or vice versa.

Supply curve shifts right when supply is increased because of some factors other than the price change. The following factors can be responsible. a) Cost of production is decreased. b) Technology is improved so production is increased.