Question

1. Use the following table to answer the question.

Dave's Production Possibility Schedule		Simon's Production Possibility Schedule
Pounds of Green Beans	Pounds of Corn	Pounds of Green Beans	Pounds of Corn
0	160	0	80
20	120	40	60
40	80	80	40
60	40	120	20
80	0	160	0

Assume Dave consumes 40 pounds of green beans and 80 pounds of corn without trade. Also, assume that Simon consumes 80 pounds of green beans and 40 pounds of corn without trade. If the terms of trade are 1 pound of green beans for 1 pound of corn, and Simon sells Dave 80 pounds of corn, then the gains from trade for Simon are ______ pounds of green beans and ______ pounds of corn with trade and specialization.

40, 0

20, 20

40, 40

0, 40

2.

When a state government chooses to build more roads, the resources used are no longer available for public education programs. This dilemma illustrates the concept of

unintended consequences.

unemployment issues.

production expenses.

scarcity.

3.

The opportunity cost to a consumer who smokes cigarettes consists of the

amount of cigarette taxes paid by this consumer.

cost of complementary products such as lighters, ashtrays, and cigarette holders.

products that the consumer could have bought instead of cigarettes.

costs imposed on others who inhale second-hand smoke.

Answer 1

1. First calculate the opportunity cost

Opportunity Cost

	1 pound of Green bean	1 pound of corn
Dave	2 pounds of corn	0.5 pounds of green beans
Simon	0.5 pounds of corn	2 pounds of green beans

Dave has comparative advantage in producing Corn and Simon has comparative advantage in producing green beans.

	Dave		Simon
	Green beans	Corn	Green beans	Corn
Without trade
Production	40	80	80	40
Consumption	40	80	80	40
After specialization
Production	0	160	160	0
Trade	+80	-80	-80	+80
Consumption	80	80	80	80
Gain from trade
Increase	40	0	0	40

Simon sells Dave 80 pounds of green beans, then the gains from trade for Simon are 0 pounds of green beans and 40 pounds of corn with trade and specialization.

Would like to correct simon will produce only green beans. Therefore, instead of corn in the question it must be green beans. Refer the above paragraph I have kept it bold.

2. When a state government chooses to build more roads, the resources used are no longer available for public education programs. This dilemma illustrates the concept of Opportunity Cost.

This happens as the resources are limited. Therefore, we can say it is due to scarcity.

3. The opportunity cost to a consumer who smokes cigarettes consists of the

products that the consumer could have bought instead of cigarettes.

Opportunity cost is defined as the next best alternative cost that is foregone.

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Answer 2

1. The gains from trade for Simon are 40 pounds of green beans and 40 pounds of corn with trade and specialization.

When the terms of trade are 1 pound of green beans for 1 pound of corn, and Simon sells Dave 80 pounds of corn, he receives 80 pounds of green beans in exchange. This means Simon gains an additional 80 pounds of green beans. However, he loses the 40 pounds of corn that he sold to Dave. So, the net gains from trade for Simon are 40 pounds of green beans and 40 pounds of corn.

2. The correct answer is "scarcity."

When a state government chooses to build more roads, the resources (such as labor, materials, and funds) used for road construction become unavailable for other purposes, such as public education programs. This situation highlights the concept of scarcity, where resources are limited, and choices must be made about how to allocate those resources among different competing uses.

3. The correct answer is "products that the consumer could have bought instead of cigarettes."

The opportunity cost of a consumer who smokes cigarettes refers to the value of the next best alternative foregone by choosing to smoke cigarettes. In this case, it is the value of other products or goods that the consumer could have bought with the money spent on cigarettes. It includes the cost of complementary products (like lighters and ashtrays) if they are part of the consumer's decision-making, but it mainly relates to the value of other goo