1. In World War II, a German POW camp guard exchanged bread and chocolate with prisoners at the rate of one loaf for one chocolate bar. Inside the POW camp, the price was 15 cigarettes per chocolate bar, and 40 cigarettes per loaf of bread. Is there an opportunity for beneficial exchange?
With the guard, a POW could exchange three chocolate bars for _____ loaves of bread. In the camp, the POW could exchange the loaves for _____ cigarettes, and then exchange the cigarettes for _____ chocolate bars. In other words, the POWs net gain from trade is _____ ?
2. Look at Demand and supply; and quantity demanded and quantity supplied; they sound alike, but are different. What causes movement along the demand and supply curves and what causes the demand and supply curves to shift left or right; that is; what causes which curves to shift in which direction?
3. Read Application 3 on page 78. Setting a minimum price above equilibrium created excess supply, which the EU government purchased. Where does the government get the money to purchase the excess wine? Could they have just not purchased the excess wine? What would happen then? What could they do with all the wine once the government has it? Do you think this is good economic policy?
4. Critical Thinking: The price of transplantable human organs has increased significantly in recent years. Why do you think that has occurred? Organ transplants are expensive. The hospital and medical personnel earn lots of money and the recipient pays lots of money. No money, however, goes to the donor or his or her family. Do you think it would change the supply of organs if donors or donor's families were paid?