Comments on homework 2

As a reminder, for Homework #2 (due Monday, Feb 21), you should be able to complete parts A through D. We will cover what is needed to complete E and F in Monday's class.

Just a hint on calculating opportunity cost. Sometimes it seems more difficult than it really is. With linear production possibilities frontiers, it is simple. What follows is how you can solve for the opportunity cost of one pound of spaghetti for the Tivoli tribe:

If you draw the PPF for the Tivoli, you will notice the endpoints are (30 pounds of spaghetti, 0 meatballs) and (50 pounds of meatballs, 0 spaghetti).

If you take the endpoints of the PPF and set them equal, you have an equation where you can solve for one unit of the good.

So for the Tivoli tribe, set up the following equation:

30 spaghetti = 50 meatballs (units are in pounds, I'm dropping that for convenience)

To get the opportunity cost of one pound of spaghetti, you solve the equation by dividing both sides by 30.

(30 spaghetti/30) = (50 meatballs/30)

so

1 spaghetti = (50/30) meatballs. This reduces to (5/3) meatballs or 1.67 meatballs.

Then to get the opportunity cost of one pound of meatballs for the Tivoli, divide both sides by 50:

(30 spaghetti/50) = (50 meatballs/50)

or

3/5 spaghetti = 1 meatball (this is also 0.6 spaghetti = 1 meatball)

(remember, units are in pounds)

So that really solves the first line of the table in B.

You can solve the Frivoli's opportunity cost in a similar manner.

Then compare the opportunity costs. The tribe with the lower opportunity cost producing a good has the "comparative advantage" in that good. (Your answer for D.)

Test 1 grade distribution

In the event you were not in class on Wednesday, Feb. 16, when the test results were returned and discussed, you will need to know the following:

Given the rather poor performance on the written problem, I dropped it from the score. So your score is merely the raw score on the multiple choice out of a possible 30 points. (Those few that actually "nailed" the written problem will get some sort of "bonus points". For now, you will know if you got the bonus if you have a "+" (plus sign) on your written response as well as on the computer printout of the multiple choice results.

The printout has the answer key as well as your responses. If you got the answer correct, you have a ".". If you missed the problem, you will have a number indicating your response. You can compare that to the correct answer.

Use the following scale as a guideline for interpreting you score:

A: 23+
B: 18 - 22
C: 14 - 17
D: 10 - 13
F: 9 and lower.

But really, any grade score than half the points (15) isn't that good. I know each test has its inherent and unique bias. However, I've taught this course more than almost any other course and I think I know what constitutes a fair test. I do curve but as I say on the syllabus, if you're not hitting at least half credit you should really pick up the effort.

My not-so-late-night

It's about 9:30. I'm feeling kinda lousy and have to go to bed early. I won't be around anymore this evening to answer any questions. If you send emails, I'll reply in the morning. Remember, I have office hours 1:30 - 2:30 on Wednesday before class. Feel free to stop by. You really should be able to figure things out from your notes and the book. (I know, I harp on the book a lot. I think a lot of people think text books are a waste or don't even open them. I sincerely believe Krugman and Wells do a great job explaining things. I'd like to think I do a good job too, but you might not catch it all while I'm talking.)

Good luck. I'll see you all Wednesday afternoon.

Dr. J

Answer key to sample problems for test 1

Here is the answer key. Let me know if you think any are incorrect. (You should email me or text me if you see me online (AIM) later. I'm not so likely to check any comments. I apologize for some of the repeated questions. These problems come from previous tests. Sometimes I reuse questions (ooo!). But anyway, this is intended to just be a helpful guide as to what kind of questions can be asked. You should also make use of the sample quizzes available from the textbook's website. (Information is on the syllabus.)

1-A, 2-C, 3-D, 4-C, 5-A, 6-B, 7-C,
8-B, 9-A, 10-D, 11-A, 12-B, 13-A, 14-A, 15-C,
16-B, 17-B, 18-A, 19-B, 20-C, 21-B, 22-A, 23-D,
24-B, 25-A, 26-D, 27-A, 28-A, 29-B, 30-D,
31-A, 32-B, 33-B, 34-B, 35-C, 36-C, 37-C,
38-C, 39-D, 40-B, 41-B, 42-B, 43-B,
44-C, 45-D, 46-D.

Good luck.


P.S. Just so we are all clear on 36 and 37.

To calculate the price index for a year, given a base year, you need to take the cost of the market basket divided by the base year cost.

so for 2005, the price index is ($160/$130) x 100

Then to answer problem 37, you need to find the price index for 2004 ($140/$130) x 100. After finding these two price index, find the percentage change between the two years (with the difference between the two in the numerator and the year 2004 value as the "reference year" in the denominator).

Comments on HW1

For problem 2, you need to calculate a percentage change. If you need reminded how to do that, you take the difference between the "current value" and the "previous value", and dividing by the previous value. Multiply by 100 to put into percent.

For example, Year 1 GDP is 7 trillion. Year 2 GDP is 7.2 trillion. The percentage change from year 1 to year 2 is (7.2 - 7) / 7 which is then 0.2 / 7 which equals 0.02857 or about 2.9%.

I know we didn't get to talk about the GDP price index, but the formula is there. Try to figure it out. We'll go over at least one of the year's calculations in class. Reading in chapter 7 you'll learn that a price index is a measure of average prices. Changes (percentage changes) measure the inflation rate.

I hope that helps. See you on Monday, when we'll wrap up chapter 7 with a discussion of measuring price level changes (inflation) using the GDP price index (which you learn a bit about on problem 2 of the homework) and compare it with the Consumer Price Index (CPI). The CPI is more "consumer" oriented and arguably a better measure of how inflation impacts households (of course, it will also have its shortcomings). Hopefully we'll even have a video.

Remember, your first test is on Wednesday. The material on the test are chapters 6 and 7 as well as our class discussions.

--J