Interdependence and Gains from Trade

1. If the United States could produce five televisions per hour of labor and China could produce three televisions per hour of labor, would it necessarily follow that the United States should specialize in television production? Why or why not?
2. Can you explain why the United States engages in international trade?
3. Discuss the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns? Justify your answer.
4. Is trade in the United States politically driven or is it based on comparative and absolute advantage?

The Market Forces of Supply and Demand

1. Explain the difference between change in quantity demanded and a shift in demand. What causes changes in quantity demanded? What causes a shift in demand?
2. Adam and Barb go to the store to purchase some lottery tickets. Without looking at the price, Adam says, “I’ll take 10 lottery tickets,” and Barb says, “I’ll take $10 worth of lottery tickets.” What is each person’s price elasticity of demand for lottery tickets?

Markets and Welfare and the Public Sector

1. Consider the market for white athletic socks, which consumers consider to be identical products. If the demand is very elastic and the supply is very inelastic, how would the burden of a new tax on athletic socks be shared between consumers and producers? What if the situation were reversed – a very inelastic demand and a very elastic supply? How would that change the way consumers and producers share the burden of the new tax? Justify your answer.
2. Does the United States’ labor supply tend to be more elastic or more inelastic? Explain the competing theories discussed in our textbook. Which seems more convincing to you? Explain your answer.

Firms in Competitive Markets

1. Suppose that a small family farm sold its output for $100,000 in a given year. The family spent $25,000 on fuel, $40,000 on seed, fertilizer, and pesticides, and $25,000 on equipment, including maintenance. The family members could have earned $20,000 working at other occupations. What is the family’s accounting cost? What is the family’s economic cost? Could the family’s economic cost ever exceed its accounting cost? Why or why not?
2. News reports from the western United States occasionally report incidents of cattle ranchers slaughtering many newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing “firms,” explain what economic factors may influence such behavior. Justify your answer.

Measuring a Nation’s Income and the Cost of Living

1. GDP is often used as a measure of well-being. Is it a reasonable measure of well-being? If so, why does Norway with its high standard of living have a relatively low GDP? Why do India and China, with their relatively low standards of living have some of the highest GDP in the world?
2. Since 1970, the labor force participation rate for women has increased from 43.3% in 1970 to 56.9% in 2018. During the same period, real GDP increased from $4.715 trillion to $17.286 trillion. Are these two events related? Explain.