Version A

I. Multiple choice

(1)c. (2)a. (3)a. (4)a. (5)c. (6)b. (7)a. (8)b. (9)d. (10)d.
(11)b. (12)c. (13)d. (14)c. (15)b.

II. Problems

(1) [Comparative advantage, gains from trade: 17 pts]

1. 1 bushel of tomatoes.
2. 1/2 bushel of tomatoes.
3. 1 bushel of zucchini.
4. 2 bushels of zucchini.
5. Ken.
6. Jennifer.
7. Both people can consume combinations of zucchini and tomatoes outside their individual production possibility curves if Ken gives three bushels of zucchini to Jennifer, who gives 2 bushels of tomatoes in return.
8. Plot should show each person's production before trade, and consumption after trade.

(2) [Market equilibrium: 12 pts]

1. excess supply.
2. $4.
3. 6 units.
4. $24 (= price times quantity).
5. $57.
6. buyers.

(3) [Shifts in demand and supply: 15 pts] Full credit requires accurate graphs.

1. right, no change, increase, increase.
2. no change, left, increase, decrease.
3. right, right, cannot be determined, increase.

(4) [Consumer surplus, producer surplus: 22 pts]

1. excess supply.
2. 6 million (equals quantity supplied minus quantity demanded).
3. fall.
4. $5.
5. 6 million.
6. $10.
7. $5.
8. $3.
9. $2.
10. $18 million.
11. $9 million.

III. Critical thinking [4 pts]

(1) Restaurant meals are expensive on Valentine's Day because demand shifts right, raising the equilibrium price (and quantity). Demand shifts right because in the US, Valentine's Day is a popular evening to eat out. The day after Valentine's Day, demand shifts back to the left, lowering the equilibrium price to its original level. (Full credit requires a supply-and-demand diagram showing the shift in demand and the change in equilibrium price.)

(2) One should disagree with this statement. The United States may have an absolute advantage in both cars and corn, but it logically cannot have a comparative advantage in both goods. A country has a comparative advantage over another country in producing a good if its opportunity cost of the good is lower than the other country's. If the United States and Mexico each specialize in producing the good in which it has a comparative advantage, and trade for the other good, both countries can benefit by enjoying combinations of goods outside their respective production possibility curves.

Version B

I. Multiple choice

(1)d. (2)b. (3)e. (4)b. (5)b. (6)a. (7)b. (8)c. (9)e. (10)c.
(11)d. (12)c. (13)d. (14)a. (15)b.

II. Problems

(1) [Comparative advantage, gains from trade: 17 pts]

1. 2 bushels of tomatoes.
2. 1 bushel of tomatoes.
3. 1/2 bushel of zucchini.
4. 1 bushel of zucchini.
5. Ken.
6. Jennifer.
7. Both people can consume combinations of zucchini and tomatoes outside their individual production possibility curves if Ken gives two bushels of zucchini to Jennifer, who gives 3 bushels of tomatoes in return.
8. Plot should show each person's production before trade, and consumption after trade.

(2) [Market equilibrium: 12 pts]

1. excess demand.
2. $10.
3. 5 units.
4. $50 (= price times quantity).
5. $56.
6. sellers.

(3) [Shifts in demand and supply: 15 pts] Full credit requires accurate graphs.

1. no change, right, decrease, increase.
2. right, no change, increase, increase.
3. left, left, cannot be determined, decrease.

(4) [Consumer surplus, producer surplus: 22 pts]

1. excess demand.
2. 5 million (equals quantity supplied minus quantity demanded).
3. rise.
4. $3.
5. 8 million.
6. $8.
7. $5.
8. $2.
9. $1.
10. $32 million.
11. $8 million.

III. Critical thinking

Same as Version A.

Version C

I. Multiple choice

(1)c. (2)a. (3)c. (4)c. (5)a. (6)d. (7)b. (8)a. (9)b. (10)a.
(11)c. (12)d. (13)c. (14)d. (15)d.

II. Problems

(1) [Comparative advantage, gains from trade: 17 pts]

1. 2 bushels of tomatoes.
2. 3 bushels of tomatoes.
3. 1/2 bushel of zucchini.
4. 1/3 bushel of zucchini.
5. Jennifer.
6. Ken.
7. Both people can consume combinations of zucchini and tomatoes outside their individual production possibility curves if Jennifer gives two bushels of zucchini to Ken, who gives 5 bushels of tomatoes in return.
8. Plot should show each person's production before trade, and consumption after trade.

(2) [Market equilibrium: 12 pts]

1. excess supply.
2. $5.
3. 4 units.
4. $20 (= price times quantity).
5. $26.
6. buyers.

(3) [Shifts in demand and supply: 15 pts] Full credit requires accurate graphs.

1. no change, right, decrease, increase.
2. right, no change, increase, increase.
3. left, right, decrease, cannot be determined.

(4) [Consumer surplus, producer surplus: 22 pts]

1. excess demand.
2. 3 million (equals quantity supplied minus quantity demanded).
3. rise.
4. $7.
5. 6 million.
6. $9.
7. $2.
8. $4.
9. $3.
10. $9 million.
11. $18 million.

III. Critical thinking

Same as Version A.

[end of answer key]