Chapter 1

1. Zed is an unemployed carpenter. He collects $200 per week in unemployment insurance, however in order to receive the unemployment insurance, he must actively "search" for work. He spends 2 hours per day, 5 days per week, looking for a job. One day, his Uncle Joe, who owns a car wash, offers Zed a job as his "wax man." Uncle Joe will pay Zed $200 per week after taxes for 40 hours of work. What is Zed's opportunity cost to take the "wax man" position? Choose the best answer.

a. Nothing. There is no economic difference between having the job and accepting unemployment insurance.
b. 38 hours per week of lost free time.
c. 30 hours per week of lost free time.
d. There is no cost to this decision, because Zed is better off with a job than without one, even if it pays the same as unemployment insurance.
e. Impossible to determine from given information.

Chapter 2

2. Identify whether the following statements are positive or normative. For "positive" put a P in the blank. For "normative" put a N in the blank.

i. ____________ Zed should take the job.
ii. ____________ If the United States has a comparative advantage in corn and Canada has a comparative advantage in wheat, then if the two countries engage in trade, the United States should specialize in corn.
iii. ____________ By specializing in production of goods for which they have comparative advantage and engaging in free trade, a country can increase its consumption.
iv. _____________ Free trade does not benefit everyone.

Chapter 3

Consider the following

i. Bemidjii has comparative advantage in the production of ______________, and Freedonia has comparative advantage in the production of _______________.

ii. For Bemidjii, the opportunity cost of 1 lb. of beef is ___________ lbs. of pork, and for Freedonia the opportunity cost of 1 lb. of pork is _____________ lbs. of beef. (Assume the countries only produce pork and beef.)

iii. Which of the following represents and acceptable trade price if each country specializes in production of the good for which they have comparative advantage?

Choose the best answer.

a. 1 lb. of beef for 0.5 lb. of pork < Trade Price < 1 lb. of beef for 2 lbs. of pork
b. 1 lb. of pork for 0.5 lb. of beef < Trade Price < 1 lb. of pork for 2.5 lbs. of beef
c. 0.4 lbs. of beef for 1 lb. of pork < Trade Price < 2 lbs. of beef for 1 lb. of pork
d. 1 lb. of beef for 1 lb. of pork < Trade Price < 2 lbs. of pork for 1 lb. of beef

Chapter 4

4. Use the graph below to compute producer surplus when the market price is $6.

5. Consider the market for hybrid-electric automobiles. For each of the following changes, determine whether there is a change in demand (that is, a shift of the demand curve) or a change in the quantity demanded (that is, no shift of the demand curve). List them by numeral in the blanks given below.

I. The price of hybrid-electric cars increases.
II. The price of gasoline-only cars falls.
III. New regulations limit the use of hybrid-electric cars.
IV. The price of hybrid-electric cars falls.
V. A lithium shortage leads to higher prices for hybrid car batteries. (Assume that hybrid
car batteries do not need to be replaced.)
VI. New technology enables producers to build cars faster.
VII. Consumers expect future prices of hybrid-electric cars to rise.
VIII. Gas prices increase.

____________________________ represent shifts of the demand curve.

____________________________ represent changes in quantity demanded (without a demand shift)