$1.$ Explain how absolute advantage and comparative advantage differ. $(2$ marks$)$

$2.$ Maria can read $20$ pages of economics in an hour. She can also read $50$ pages of

sociology in an hour. She spends $5$ hours per day studying.

a$.$ Draw Maria$$s production possibilities frontier for reading economics and sociology.

$(2$ marks$)$

b$.$ What is Maria$$s opportunity cost of reading $100$ pages of sociology? $(2$ marks$)$

$3.$ Canadian and Japanese workers can each produce $4$ cars per year. A Canadian worker

can produce $10$ tonnes of grain per year, whereas a Japanese worker can produce $5$ tonnes

grain per year. To keep things simple, assume that each country has $100$ million workers.

a$.$ For this situation, construct a table analogous to panel $($a$)$ in Figure $3\mathrm{.}1$ from the

textbook and lecture notes. $(4$ marks$)$

b$.$ Graph the production possibilities frontier of the Canadian and Japanese economies.

$(4$ marks$)$

c$.$ For Canada, what is the opportunity cost of a car? Of grain? For Japan, what is the

opportunity cost of a car? Of grain? Put this information in a table analogous to

Table $3\mathrm{.}1.(4$ marks$)$

d$.$ Which country has an absolute advantage in producing cars? In producing grain? $(2$

marks$)$

e$.$ Which country has a comparative advantage in producing cars? In producing grain?

$(2$ marks$)$

$2$

$4.$ Pat and Kris are roommates. They spend most of their time studying $($of course$),$ but they

leave some time for their favourite activities: making pizza and brewing root beer. Pat

takes $4$ hours to brew $5$ L of root beer and $2$ hours to make a pizza. Kris takes $6$ hours to

brew $5$ L of root beer and $4$ hours to make a pizza.

a$.$ What is each roommate$$s opportunity cost of making a pizza? Who has the absolute

advantage in making pizza? Who has the comparative advantage in making pizza? $(4$

marks$)$

b$.$ If Pat and Kris trade products with each other, who will trade away pizza in exchange

for root beer? $(2$ marks$)$

$5.$ Using supply$-$and$-$demand diagrams, show the effect of the following events on the

market for sweatshirts.

a$.$ A hurricane in South Carolina damages the cotton crop. $(2$ marks$)$

b$.$ The price of leather jackets falls. $(2$ marks$)$

c$.$ All universities require morning calisthenics in appropriate attire. $(2$ marks$)$

d$.$ New knitting machines are invented. $(2$ marks$)$

$6.$ Market research has revealed the following information about the market for chocolate

bars: The demand schedule can be represented by the equation QD $=1600300$P$,$ where

QD is the quantity demanded and P is the price. The supply schedule can be represented

by the equation QS $=1400+700$P$,$ where QS is the quantity supplied.

a$.$ Calculate the equilibrium price and quantity in the market for chocolate bars. $(4$

marks$)$

b$.$ Say that in response to a major industry ad campaign, the demand schedule for

chocolate bars shifted to the right, as represented by the equation QD $=1800300$P$.$

What happens to the equilibrium price and quantity of chocolate bars in this case? $(4$

marks$)$

$3$

c$.$ Returning to the original demand schedule, say that the price of cocoa beans, a major

ingredient in the production of chocolate bars, increased because of a drought in subSaharan Africa, a major producer of cocoa, changing the supply schedule to

QS $=1100+700$P$.$ What happens to the equilibrium price and quantity in this case? $(4$

marks$)$

$7.$ Because bagels and cream cheese are often eaten together, they are complements.

a$.$ We observe that both the equilibrium price of cream cheese and the equilibrium

quantity of bagels have risen. What could be responsible for this pattern$$a fall in the

price of flour or a fall in the price of milk? Illustrate and explain your answer. $(4$

marks$)$

b$.$ Suppose instead that the equilibrium price of cream cheese has risen but the

equilibrium quantity of bagels has fallen. What could be responsible for this pattern$$

a rise in the price of flour or a rise in the price of milk? Illustrate and explain your

answer. $(4$ marks$)$

$8.$ Consider the following events: Scientists reveal that consumption of oranges decreases

the risk of diabetes and, at the same time, farmers use a new fertilizer that makes orange

trees more productive. Illustrate and explain what effect these changes have on the

equilibrium price and quantity of oranges. $(4$ marks