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Econ 202 Module 1 Homework Analysis

The document contains homework questions for an Economics course, focusing on concepts such as absolute and comparative advantage, opportunity cost, allocative and productive efficiency, and the impact of division of labor on production. It includes practical scenarios involving individuals Erin and John, as well as Marie's budgeting decisions, to illustrate these economic principles. Additionally, it poses theoretical questions about market versus command economies and decision-making under constraints.

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Kristanna Hz
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21 views3 pages

Econ 202 Module 1 Homework Analysis

The document contains homework questions for an Economics course, focusing on concepts such as absolute and comparative advantage, opportunity cost, allocative and productive efficiency, and the impact of division of labor on production. It includes practical scenarios involving individuals Erin and John, as well as Marie's budgeting decisions, to illustrate these economic principles. Additionally, it poses theoretical questions about market versus command economies and decision-making under constraints.

Uploaded by

Kristanna Hz
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Econ 202

Module 1 Homework

1. Erin and John work at a phone store. On average, Erin generates $10,000 in sales per
hour. John generates $6000. Erin can clean the store in 2 hours. John can clean the store
in 3 hours.
a. Who has an absolute advantage when it comes to sales?
b. Who has an absolute advantage when it comes to cleaning the store?
c. What is Erin’s opportunity cost if she cleans the store?
d. What is John’s opportunity cost if he cleans the store?
e. Who has a comparative advantage when it comes to cleaning the store?
f. Erin uses 9 hours to generate $90,000. How many times could she have cleaned
the store in that time?
g. John uses 15 hours to generate $90,000. How many times could he have cleaned
the store in that time?
h. Who has a comparative advantage when it comes to sales?

2. In the previous question, should both Erin and John spend equal time selling and
cleaning the store? Explain. If not, who should spend more time selling and who should
more time cleaning?

3. Which of the following is productively efficient but not allocatively efficient? Which of
the following is allocatively efficient but not productively efficient? Explain your
answers.
a. It costs a carmaker $20,000 more than its competitors to produce an SUV.
However, these models are popular with higher-income buyers.
b. A company lowers its average production cost of VCRs to $2 each. Since this is an
outdated technology, few consumers are interested.

4. Answer all of the following:


a. Why do we expect a market-based economy to be closer to allocatively efficient
than a command economy?
b. Why do we expect a market-based economy to be closer to productively efficient
than a command economy?
c. What is one disadvantage of market economies have compared to command
economies?

5. Marie has a weekly budget of $45, which she likes to spend on magazines and pies.
a. If the price of a magazine is $5 each, what is the maximum number of magazines she
could buy in a week?
b. If the price of a pie is $15, what is the maximum number of pies she could buy in a
week?
c. What is Marie’s opportunity cost of purchasing a pie (in terms of magazines)?
d. At the start of the week, Marie decides to buy a pie. Does this imply that the utility
she receives from this pie is greater than or less than her opportunity cost of
purchasing the pie? Explain your answer.
e. Marie is thinking about purchasing a second pie. Do we expect the marginal utility
she receives from the second pie to be greater than, less than, or equal to the
marginal utility she receives from the first pie? Explain your answer.

6. Why might increasing the division of labor increase a firm’s production? How could this
lead to a firm developing economies of scale?

7. Use the PPF below to answer the following questions:

a. Label each point below as efficient, inefficient, or unattainable:


A
B
C
D
E

b. What is the output combination at point B?


Torches
Pitchforks

c. If the economy produced only torches, how many could it produce?


d. Why can’t the economy produce at point D?

e. State one reason why the economy may be able to produce at point D in the
future.

f. If the economy shifts from point B to point E, what is its opportunity cost (include
the quantity)?

8. Lars has a final exam that he is unprepared for. But instead of studying, he goes out the
night before to party with friends.
a. Explain why this decision, although it will hurt Lars’s grade, might be
economically rational.
b. Should we conclude that Lars’s utility from studying for his exam is higher than
his opportunity cost or should we conclude that it is lower than his opportunity
cost? Explain.

Common questions

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Increasing the division of labor enhances production as workers become more specialized and efficient, reducing time and effort for tasks. This specialization can increase output, which spreads fixed costs over a larger output leading to economies of scale .

Erin and John should not spend equal time on sales and cleaning. Given Erin's higher opportunity cost in cleaning ($20,000) compared to John's ($18,000), Erin should focus more on sales while John handles cleaning, optimizing based on comparative advantage .

A market-based economy is expected to be closer to allocatively efficient because prices reflect consumer preferences and available resources, aligning production with consumer wants, unlike a command economy where central planning may not adapt quickly to demand .

John has a comparative advantage in cleaning the store because his opportunity cost in terms of lost sales ($18,000 in 3 hours) is lower than Erin's $20,000 for 2 hours .

The economy can't produce at point D because it represents an unattainable output with current resources and technologies. Future technological advances or increases in resources could make this point reachable .

The opportunity cost of shifting from point B to E is the number of torches forgone, which will depend on the specific PPF data provided, illustrating trade-offs between the two goods .

Lars's decision might be economically rational if the utility gained from partying exceeds the benefit from the likely improved exam performance, considering his long-term self-assessment of costs and benefits .

The marginal utility of the second pie is likely less due to the law of diminishing marginal utility, where the additional satisfaction decreases with each extra unit consumed .

Erin's opportunity cost of cleaning the store is the $20,000 in sales she could have generated in 2 hours (her sales rate is $10,000 per hour).

Erin has an absolute advantage in cleaning the store because she can complete the task in 2 hours compared to John's 3 hours, meaning she is more efficient in that activity.

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