ECO2013-04 Fall 1996 KEY Quiz Eleven
Before taxes or trade, production costs of wine in France are 5 francs a liter, of good beer 12 francs a liter. In England, they are for wine 2 pounds a liter, for good beer one pound a liter. You would expect
1. a. France exports beer b. England imports wine c. France exports wine d. England imports beer e. b & c. 12 francs in France buys 2.4 l of wine or 1 l of beer, so opportunity cost of beer is 2.4 wine, of wine 5/12 beer. In England, 2 pounds buys one wine or two beer, so opportunity cost of beer is half a wine, and of wine is two beer. France is low opportunity cost producer of wine, exports it; England is high opportunity cost producer of wine, imports it. 70% of you got it right.
2. The opportunity cost of a liter of beer in France is: a. 2.4 liters of wine; b. 5/12 liters of wine c. cannot tell from this information.
See above; only 47% got it right, almost as many inverted it and answered b. Opportunity cost is how much of the other thing you give up.
3. The opportunity cost of a liter of wine in France is: a. lower than its opportunity cost in England b. higher than its opportunity cost in England c. cannot tell from this amount of information.
See above again; 5/12 versus 2 liters, its lower. 40% right, more of you inverted again.
4. A country will tend to export those goods for which: a. it is a low opportunity cost producer b. it is a high opportunity cost producer c. it is an average opportunity cost producer.
87% right! You can learn the rules, but you've got to apply them as well!
5. If England and France start to trade, the price of beer will tend to
a. rise in England b. fall in England c. rise in France d. not change.
54% right; effectively, you add some French demand to the English, so price will rise.
Since early 1994, the exchange rate of the US $ for the Japanese Yen has changed from $1 = 80 Yen to $1 = 110 Yen (approximately). If this is so, ceteris paribus, then
6. If the Yen price of Japanese-made cars has not changed, US imports of Japanese made cars will tend to have
a. increased in number b. decreased in number c. increased in $ value but not in number
Imagine a car costing 880,000 yen, say; at the old rate, it was $11,000, but at the new rate it is only $8,000, i.e. it is cheaper, so US
residents will tend to buy, i.e. import, more. 56% right.
7. The number of Japanese tourists visiting Disneyland will tend to have
a. increased in number b. decreased in number c. not changed
Same difference; a $1,000 tour that used to cost the Japanese 80,000 Yen now costs 110,000 Yen, is more expensive, so fewer Japanese
would buy it. 71% got this one right; why is this one easier than no.6?
8. Japanese financial institutions owning US treasury bonds will, in terms of Yen, have experienced [assume NO interest rate changes]
a. a capital gain b. a capital loss c. no change in Yen value of the bonds
US treasury bonds are denominated in $s, so a $1,000 bond previously worth 80,000 Yen is now worth 110,000 Yen, for a capital gain. Only 53% got this right, 40% said a loss; why???
9. A Japanese company that was considering building a factory in Alabama will see the investment, in terms of the Yen cost,
a. costing more than before b. costing less than before c. no change
Same again; if it was going to cost $10 million, that was 800 million Yen but is now 1,100 million Yen. 86% right.
10. If oil is priced in dollars (as it is), other things equal the Yen price paid by Japan for oil imports will have
a. gone down b. gone up c. not changed.
Same again; 77% right.
If it is any consolation to you, I used this same quiz in a previous year, and you did considerably better than those earlier students, so maybe things look good for the final!