Page 878 - Krugmans Economics for AP Text Book_Neat

S-32 SOLUTIONS TO AP REVIEW QUESTIONS

Quantity Quantity Bundle X is
of movie of potatoes
tickets (pounds) not affordable
X
A 10
2
8
B 6
1
4
C BL 2
0 2 4 BL
Quantity of popcorn 0 1 2 3 4 5
(buckets)
Quantity of clams (pounds)
b. The accompanying table shows the consumer’s consump- Tackle the Test:
tion possibilities, A through D. These consumption possi-
bilities are plotted in the accompanying diagram, along Multiple-Choice Questions
with the consumer’s budget line. 1. d
2. b
Quantity of Quantity of 3.
Consumption Bundle underwear (pairs) socks (pairs) a
4. b
A 0 6
5. d
B 1 4
Tackle the Test:
C 2 2
Free-Response Questions
D 3 0
2. a. Quantity of
good Y
Quantity
of socks 5
(pairs)
A
6
B
4
0 20
C Quantity of good X
2
BL D
b. Yes, 100/$5 = 400/$20
0 1 2 3 Quantity of underwear
(pairs) c. Total utility will increase because marginal utility is posi-
tive, while marginal utility will decrease due to the princi-
ple of diminishing marginal utility.
3. From Table 51.3 you can see that Sammy’s marginal utili-
ty per dollar from increasing his consumption of clams Module 52
from 3 to 4 pounds and his marginal utility per dollar
from increasing his consumption of potatoes from 9 to Check Your Understanding
10 pounds are the same, 0.75 utils. But a consumption
bundle consisting of 4 pounds of clams and 10 pounds of 1. a. Supplies are an explicit cost because they require an out-
potatoes is not Sammy’s optimal consumption bundle lay of money.
because it is not affordable given his income of $20; a b. If the basement could be used in some other way that
bundle of 4 pounds of clams and 10 pounds of potatoes generates money, such as renting it to a student, then the
costs $4 × 4 + $2 × 10 = $36, $16 more than Sammy’s implicit cost is that money forgone. Otherwise, the
income. This can be illustrated with Sammy’s budget line implicit cost is zero.
c. Wages are an explicit cost.
from Figure 51.3: a bundle of 4 pounds of clams and 10
pounds of potatoes is represented by point X in the d. By using the van for their business, Karma and Don forgo
the money they could have gained by selling it. So use of
accompanying diagram, a point that lies outside Sammy’s
budget line. If you look at the horizontal axis of Figure the van is an implicit cost.
e. Karma’s forgone wages from her job are an implicit cost.
51.4, it is quite clear that there is no such thing in
Sammy’s consumption possibilities as a bundle consisting 2. a. Economic profit is zero, as explained by the following cal-
of 4 pounds of clams and 10 pounds of potatoes. culations: