Q: What is the formula for calculating the opportunity cost of websites in terms of computer programs, given the PPC data?

Opportunity cost of websites = $$\frac{\text{Loss in computer programs}}{\text{Gain in websites}}$$

Q: What is the effect of a tariff ($$\tau) on $$the price of imported goods?

The domestic price increases to $$P_w + \tau.$$

Question 1

Which of the following best describes the concept of opportunity cost as illustrated by the Production Possibilities Curve (PPC)?

Accepted Answer

The opportunity cost is the amount of one good that must be given up to produce more of another good, represented by the negative slope of the PPC.

Question 2

Suppose you can produce 8 websites or 16 computer programs in a day. What is the opportunity cost of producing one website?

Accepted Answer

The opportunity cost is $$2$$ computer programs.

Question 3

If Olivia can produce 16 websites or 8 computer programs in a day, what is her opportunity cost of producing one computer program?

Accepted Answer

The opportunity cost is $$2$$ websites.

Question 4

Which statement best explains comparative advantage?

Accepted Answer

Comparative advantage is when an economic agent can produce a good at a lower opportunity cost than another agent.

Question 5

If you and Olivia specialize according to comparative advantage and trade, what is the main benefit?

Accepted Answer

Both of you can complete the task in fewer days than if you worked separately.

Question 6

What is the formula for calculating the opportunity cost of websites in terms of computer programs, given the PPC data?

Accepted Answer

Opportunity cost of websites = $$\frac{	ext{Loss in computer programs}}{	ext{Gain in websites}}$$

Question 7

If the world price ($$P_w) of $$shoes is higher than the domestic price, what happens in the domestic market?

Accepted Answer

Domestic sellers export shoes, gaining producer surplus.

Question 8

What is the effect of a tariff ($$	au) on $$the price of imported goods?

Accepted Answer

The domestic price increases to $$P_w + 	au.$$

Question 9

Which area on the supply and demand graph represents deadweight loss from tariffs?

Accepted Answer

The areas labeled $$G$$ and $$J$$ represent deadweight loss.

Question 10

Why do some groups protest against free trade, as seen in the 'Battle of Seattle'?

Accepted Answer

They believe free trade can harm workers, the environment, and developing nations.

Question 11

If you have an absolute advantage in producing both websites and programs, should you always produce both goods yourself?

Accepted Answer

No, because comparative advantage determines who should specialize, not absolute advantage.

Question 12

What is the range of acceptable terms of trade for websites between you and Olivia, given your opportunity costs?

Accepted Answer

The range is $$[1/2, 2/3]$$ programs per website.

Question 13

If the PPC is bowed outward, what does this indicate about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 14

Which of the following is NOT a reason cited for imposing tariffs?

Accepted Answer

To maximize consumer surplus.

Question 15

What happens to social surplus when a tariff is imposed on imported goods?

Accepted Answer

Social surplus decreases due to deadweight loss.

Question 16

If a country imposes tariffs on intermediate goods, what is the likely effect on domestic producers?

Accepted Answer

The price of inputs increases, shifting supply backwards and increasing deadweight loss.

Question 17

Which formula represents the change in consumer surplus ($$\Delta CS) $$due to a tariff, as shown in the supply and demand graph?

Accepted Answer

$$\Delta CS = -E - G - I - J$$

Question 18

In the context of international trade, what does the term 'world price' ($$P_{world}) $$refer to?

Accepted Answer

The price of a good in the global market, which is taken as given by small economies.

Question 19

If both you and Olivia specialize according to comparative advantage and trade, but the terms of trade are outside the acceptable range, what is the likely outcome?

Accepted Answer

Trade will not occur because it is not mutually beneficial.

Trade and the Production Possibilities Curve in Microeconomics

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