1) Health insurance companies have the goal of reducing payments to doctors and hospitals. Oneway they have done this is by requiring individuals to pay a deductible. For example, a $1,000deductible means that individuals must pay for the first $1,000 in health care expenses overthe course of a year before insurance starts kicking in. In terms of incentives, explain how thepresence of a deductible reduces expenses for the health insurance company.2) Andy quit his job as a manager at a grocery store last year to open a small restaurant. Therestaurant did relatively well in its first year, making $250,000 in revenues. Andy pays hisstaff of three waiters and two cooks a total of $150,000 in wages and an additional $65,000for other related expenses (rents, ingredients, utilities etc.)a. What is the op2c. Economic majors tend to be more selfish than sociology majors.d. Income taxes are too high in America.e. Less than 5% of all couples who got married on the TV shows “The Bachelor” and“The Bachelorette” are still together as of 2018.4) Question 5 (page 24) in the Study Problems at the end of Chapter 1 in the textbook.5)a. Draw a production possibilities frontier (PPF) for two goods, good A and good B.Suppose that these goods are subject to increasing opportunity costs in production, andbe sure that your graph reflects this fact.b. Now suppose that a new and innovative technology enhances the production of onlygood A. Illustrate how this new innovation changes the PPF you draw in part a.6) The table below shows the maximum number of textiles (in millions of pounds of cloth) andwine (in thousands of barrels) that France and Britain can produce if they utilize their resourcesefficiently:Country MaximumTextileMaximumWineOpportunity Costof 1 TextileOpportunity Costof 1 WineBritain 200 400France 96 288a. Draw the PPFs for France and Britain, assuming constant opportunity cost inproduction. Fully label your graphs.b. Who has the absolute advantage in production?c. Fill in the rest of the table with the opportunity cost textile and wine for each country.Don’t forget the units.d. Identify which country has a comparative advantage in producing each good.Before the possibility of trading exists, Britain was producing 120 units of textiles and 160 unitsof wine by itself while France was producing 72 units of textiles and 72 units of wine by itself.e. Denote these points on the PPFs you drew in part (a). Are they utilizing resourcesefficiently on their own? Why or why not?3f. Britain proposes to France that they should each specialize in producing the good theyhave a comparative advantage in, and that Britain would trade 76 units of textile theyproduce for 208 units of wine that France produces. Are there gains from trade in thisscenario? If so, calculate the gains in each good for each country.g. Under what terms of trade (defined by the ratio of textile to wine) would France andBritain choose to specialize? Does the ratio of textile to wine in part (e) fall in thisrange?7) Question 9 (page 55) in the Study Problems at the end of Chapter 2 in the textbook.8) In class, we have discussed the gains from specialization and trade. While the real world is alot more complicated than the 2-good, 2-individual model we have seen, the intuition of the modelremains: that under the right terms, specialization and trade can create gains for all partiesinvolved.Watch the following video on the Trans Pacific Partnership (TPP), a trade deal among differentcountries across the Pacific Ocean that has been feature prominently in the news during recentyears, and answer the following questions:Video link: a. Name at least three countries that are part of the TPP.b. What does the video suggest would be a good specialization for the U.S. in this trade deal?What about specialization for a country like Vietnam? What does that imply about thecomparative advantage for each country?c. What are some of the reasons cited in support of the TPP?d. What are some of the reasons cited against the TPP?e. Do you (or your group) support the U.S. joining the TPP? Why or why not? (This questiondoes not have a right or wrong answers, it’s all about how you support your argument.)
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