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How to Answer Econ Problems

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How to Answer Economics Problems
Tips and Tricks
1. When graphing, ALWAYS label intercepts, all axes, and slopes!
2. Use definitions to explain your answers
Ex: Q: Which country has a comparative advantage in corn production?
A: Canada has a comparative advantage in corn production because its opportunity cost of corn production is .5, which is lower than the US's opportunity cost of producing corn at .9.
3. Utilize definitions to explain your math
Ex: Q: What is the opportunity cost of producing coffee?
A: In order to find the opportunity cost of coffee, we must determine how many units of production of lumber we must give up to increase production coffee by one unit. In order to produce one more unit of coffee, we must give up production of 3 units of lumber. Therefore our opportunity cost is 3 lumber/ 1 coffee, or 3.
4. When in doubt, word vomit.
If you have no idea how to find the opportunity cost, you can still get partial credit on an a problem like the example used in Bullet #2 by answering as follows:
Q: Which country has a comparative advantage in corn production?
A: The country that has a lower opportunity cost in the production of corn will have the comparative advantage.
All you've really done is stated the definition of comparative advantage, but in doing so, you have demonstrated that you understand what the question is asking and that you know half of the answer. 5. Explain all you math in words!
Ex: Jerry can either spend his money on 2 sandwiches at Jimmy Johns or 1 coffee at Starbucks. Therefore, Jerry's opportunity cost of coffee is 2 sandwiches / 1 coffee = 2.
OR We could have said that in order to consume one unit of coffee, Jerry must give up 2 sandwiches. His opportunity cost of coffee is then 2 sandwiches / 1 coffee = 2.
It would not have been adequate to simply answer 2
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