Sample Quiz #1Ec 201 Fall, 2012Michigan State University L. MartinMultiple Choice. Please enter the best answer on the “bubble sheet.”For questions 1 and 2 use the following information.The Dean has $600,000 to spend. Faculty can be hired for $100,000 each. Assistant deans can be hired for $150,000 each. Draw her budget constraint with faculty hired on the horizontal axis. 1. The opportunity cost of hiring a faculty person is a. $150,000;b. $100,000;c. 1/6 of the budget;d. 1.5 assistant deans;e. 2/3 assistant dean.*2. If the Dean’s budget increases to $800,000, the budget constrainta. rotates clockwise around the horizontal intercept;b. rotates counter-clockwise around the horizontal intercept;c. rotates clockwise about the vertical intercept.d. shifts parallel to the right;*e. shifts parallel to the left. 3. If the cost of hiring faculty rises to $200,000, the budget constraint a. rotates clockwise around the horizontal intercept;b. rotates counter-clockwise around the horizontal intercept;c. rotates clockwise about the vertical intercept.*d. shifts parallel to the right;e. shifts parallel to the left. 4. Lakeesha can work as much as 50 weeks per year at a take-home wage of $1,000 per week. She also has non-wage income equal to $5,000 per year. The (absolute value of the) slope of her leisure-consumption budget constraint isa. $1,000/50;b. $4,000/week;c. $5,000/week;*d. $5,000 + $1,000 x 50;e. $1,000/week.5. Han currently takes home $90,000 per year after taxes. He expects to receive $10,000after taxes when he retires in 10 years. Over this period he could earn 100% on any money he invested in the company pension plan. The (absolute value of the) slope of histwo-period budget constraint equalsa. 2;*b. 1.3;c. 1.2;d. 1.1;e. 101.6. When two countries trade,a. each individual and firm in each country benefits;b. any individual benefits from the trades that she engages in;c. particular groups in each country may be hurt by trade in some goods;d. b. and c. are correct;*e. none of the above.7. Which of the following describes the relationship between comparative and absolute advantage?a. If a country has comparative advantage in the production of a good, then it also has absolute advantage.b. If a country has absolute advantage in the production of a good, then it also has comparative advantage.c. A country cannot have absolute advantage and comparative advantage in the production of the same goods.d. All of the above.e. None of the above.*8. If the price of silk ties is $40 and the price of silk handkerchiefs is $20, then the relative price of a silk tie isa. 2 handkerchiefs;*b. ½ handkerchief;c. $40;d. $20;e. none of the above.9. If the United States has a absolute advantage in the production of a good, thena. fewer resources are required to produce the good in the U.S.;*b. the U.S. also has comparative advantage in the production of the good;c. the relative cost of producing the good is lower in the U.S.;d. the U.S. will import the good:e. the U.S. will export the good;10. A country with comparative advantage in the production of apricots?a. will have a trade surplus;b. will have a trade deficit;c. will export apricots;*d. will import apricots;e. will also have absolute advantage in apricots.11. A country with a highly educated, skilled workforce willa. have comparative advantage in goods requiring skilled workers;*b. have comparative advantage in goods requiring low wage workers;c. have comparative advantage in goods requiring abundant, fertile cropland;d. have comparative advantage in goods requiring physical capital, such as plant and equipment;e. all of the above.I. Problems. Please answer in the space provided.1. The dean has received a donation of $90,000 for technology acquisition. He will spend the money on either desktop computers for the faculty at a price of $3,000 eachor technology training seminars for the faculty at a price of $9,000 each.a. Draw his budget constraint. Be sure to label both axes and intercepts.b. What is the opportunity cost of a training seminar?3 desktops__________c. What is the opportunity cost of a desktop computer?1/3 seminar___________ seminarscomputers30102. Comparative advantage. The following table gives the annual productivities of typicalworkers in Bulgaria and Poland for wine and wheat. World prices for wine and wheat are$20 per case and $5 per bushel.Bulgaria Polandwine (cases) 6 6wheat (000s bu) 18 30a. Plot the production possibilities frontiers.b. What is the opportunity cost of wine in Poland?______5 bu wheat_________c. What is the opportunity cost of wine in Bulgaria?________3 cases wine____ d. In which good does Bulgaria have comparative advantage? __________wine_______e. Suppose that the relative price is 4 wheat per wine. Which good will Bulgaria export?______wine______ f. At the relative price of 4 wheat per wine, show how both countries can gain from trade. Show the change on your diagrams on part a.wheat wheatwine wine18306 67.524Bulgaria Poland3. Recently divorced, Billy-Bob gets $30,000 per year in alimony from his ex-wife the noted country singer, Bella-Belle. He can earn $1000 per week as a party planner. He has 50 weeks available for work. (He must spend the other two weeks huntin’.)a. Draw his budget constraint.b. Suppose that he chooses to work 31 weeks. Label his chosen point A.leisureconsumption50$30,000$80,000A19leisure work4. Larry Martin has current income of $100,000 after tax. He expects $20,000 income when he retires in 20 years. (That’s right, another 40 semesters of that dumb Martin Lawrence joke!) He invests his money in broadly diversified mutual funds that are expected to earn 100 % over the next 20 years.a. Draw his budget constraint.b. He saves $20,000 per year. Show this choice on the above diagram. Label it A.c. He gains access to a private equity investment fund that promises to return 200%. Show the effect on his budget constraint.Current consumptionFuture consumption$100$20$220A$80consumption