You have decided that you are going to consume 600 calories of beer and snacks at a party Saturday night. A beer has 150 calories and a snack has 75 calories
a. Create a table that shows the various combinations of beer and snacks you can consume. To keep things simple, use only round numbers (e.g., you could choose 1 or 2 beers but not 1.5 beers).
b. What is the opportunity cost of a beer?
a. Suppose you choose to consume 0 beers. Then you could use all 600 calories on snacks. Since snacks have 75 calories you could consume 600 / 75 = 8 snacks. Now suppose you choose 1 beer. A beer has 150 calories and so you would be left with 600 – 150 = 450 calories for snacks. You could therefore consume 450 / 75 = 6 snacks if you choose 1 beer. You can use the same logic to complete the table below.
b. If you consume 1 more beer you will have 150 fewer calories for snacks. Since a snack has 75 calories, consuming one more beer means that you will have to give up 150 / 75 = 2 snacks. The opportunity cost of a beer is therefore 2 snacks.
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Suppose that a sharp downturn in the price of a country's prime manufacturing product results in a terrible recession and a massive decline in the general income level of the citizens. Other things constant, what would be the recession's most probable effect on money demand in the country?
a. People will hold more money for any purpose, resulting in a decline in money demand. b. Local M1 money demand will rise. c. The transactions demand for money will fall such that the quantity of money demanded will be lower at any given interest rate level. d. The speculative demand for money will fall, causing a downward movement along the money demand curve. e. The precautionary demand for money will increase, causing an upward shift in the money demand curve.
A surplus quantity will occur when
a. quantity demanded is greater than quantity supplied. b. price is above equilibrium. c. demand is elastic. d. price is below equilibrium.