Supplemental Instruction
Iowa State University (pg. 1) / Leader:
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Rational Decision Making
- Fluffy’s Tacos sells burritos depending on the meat in it. On Monday’s Sophie usually has cravings for a chicken burrito, which costs $6. On Tuesday’s Sophie usually craves pork instead, which costs $7. Sophie receives the same total benefit for the burritos she craves, regardless of the meat in it. The table below shows the total benefit Sophie receives from eating the burritos that she craves.
a.)How many burritos will Sophie buy on Mondays?
b.)How many burritos will Sophie buy on Tuesdays?
c.)On a Tuesday, how many chicken burritos would Sophie buy if chicken burritos cost $4?
d.)How low does the price of burritos have to be for Sophie to buy 4 tacos on a Tuesday?
MC/MB
1.Tony likes to buy trophies to make himself feel better about his life. His total cost and total benefit from buying trophies is shown below.
a.)Fill in the marginal benefit and marginal cost columns.
b.)Is his marginal benefit increasing or decreasing? What about his marginal cost?
c.)Will Tony buy the 3rd trophy? Will he buy the 8th trophy?
d.)How many trophies will Tony buy?
2. Mark is a baker in a cake shop. His total cost and total benefit for producing cakes is shown below.
a.)Fill in the marginal benefit and marginal cost columns.
b.)Is his marginal benefit increasing or decreasing? What about his marginal cost?
c.)Will Mark make the 3rd cake? Will he make the 8th?
d.)How many cakes will Mark bake?
PPF
1. Below is the production possibility frontier for a fruit farm that grows apples and oranges.
a.)Is this graph linear or bowed outward?
b.)What is the opportunity cost of moving from point B to point C?
c.)What is the opportunity cost of moving from point G to point F?
d.)How many oranges can be produced when 100 apples are being produced?
e.)What is an example of an inefficient production combination for this farm?
f.)What is an example of an unattainable production combination for this farm?
g.)Where is this farm’s point of allocative efficiency, relative to the given points?
2. Below is a production possibility frontier for a local restaurant.
a.)Is this graph linear or bowed outward?
b.)What is the opportunity cost of moving from point B to point C?
c.)What is the opportunity cost of moving from point F to point E?
d.)How many oranges can be produced when 3 burritos are being produced?
e.)What is an example of an inefficient production combination for this shop?
f.)What is an example of an unattainable production combination for this shop?
g.)Where is this shop’s point of allocative efficiency, relative to the given points?
Trade
1. Oscar and Julia can both produce either cookies or coffee. Oscar can produce either 16 cups of coffee or 64 cookies. Julia can produce either 20 cups of coffee or 40 cookies.
a.)What is Oscar’s opportunity cost for producing 1 cup of coffee? 1 cookie?
b.)What is Julia’s opportunity cost for producing 1 cup of coffee? 1 cookie?
c.)Who has comparative advantage in cookie production? Coffee production?
d.)Who has absolute advantage in cookie production?
e.)In what range should the terms of trade be for both to benefit from trading?
2. Bill and Joel can produce either pancakes or waffles. Bill can produce either 5 pancakes or 3 waffles. Joel can produce either 4 pancakes or 2 waffles.
a.)Who has comparative advantage in producing pancakes? In producing waffles?
b.)Who has absolute advantage in producing pancakes? In producing waffles?
c.)In what range should the terms of trade be for both Bill and Joel to benefit from trading?
Describe the difference between micro and macroeconomics
List the 4 types of resources.
Sketch the circular flow model.
What is a production possibility frontier?
What is opportunity cost?
Describe the difference between comparative and absolute advantage.
What causes increasing marginal costs?
What causes decreasing marginal benefit?
Does a straight-line PPF represent increasing, constant, or decreasing opportunity costs?
The terms of trade are acceptable if the price is ______the seller's opportunity cost and ______the buyer's opportunity cost. (Above, below, or equal to for each blank)
What are the three components of rational decision making?
Where is allocative efficiency?
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