Download Econ 105 Section 8 Take-home Homework 1 Due Date: Wednesday

Econ 105 Section 8
Take-home Homework 1
Due Date: Wednesday, September 19th, 2012 (at beginning of class)
Instructions: Please write your answers on a SEPARATE sheet of paper. Make sure your
answers are precise and complete. Don’t forget to label all items on graphs. Remember, no late
assignments will be accepted. There are 5 questions for a total of 20 points.
Chapter 2
1. (4 points) A country has the following production possibility table:
Resources
Devoted to
Clothing
100%
80
60
40
20
0
Output of
Clothing
20
16
12
8
4
0
Resources
Devoted to Food
0%
20
40
60
80
100
Output of
Food
0
5
9
12
14
15
a. Draw the country’s production possibility curve.
b. What’s happening to marginal opportunity costs as output of food increases?
c. Say the country gets better at the production of food. What will happen to the production
possibility curve (show graphically and verbally)?
d. Say the country gets equally better at producing both food and clothing. What will
happen to the production possibility curve (show graphically and verbally)?
2. (4 points) Suppose the United States and Japan have the following production possibility
tables:
Japan
Bolts of Cloth
Tons of Wheat
1,000
0
800
100
600
200
400
300
200
400
0
500
United States
Bolts of Cloth
Tons of Wheat
500
0
400
200
300
400
200
600
100
800
0
1,000
a. Draw each country’s production possibility curve.
b. In what good does the United States have a comparative advantage?
c. In what good does the Japan have a comparative advantage?
d. Assume Japan is consuming 400 bolts of cloth and 300 tons of wheat, and the United
States is consuming 400 bolts of cloth and 200 tons of wheat BEFORE trade. If both
produce the goods for which they have a comparative advantage and trade half, what will
be the new production, consumption, and gains from trade?
Japan
Bolts of
Cloth
United States
Tons of Wheat
Bolts of Cloth
Tons of Wheat
production and consumption
without trade
production with trade
consumption with trade
gains from trade
3. (2 points) Why is entrepreneurship a central part of any business?
Chapter 3
4. (5 points) You are given the following individual demand tables for comic books.
Price
$2
4
6
8
10
12
14
16
a.
b.
c.
d.
e.
John
4
4
0
0
0
0
0
0
Liz
36
32
28
24
20
16
12
8
Alex
24
20
16
12
8
4
0
0
Determine the market demand table.
Graph the individual and market demand curves.
If the current market price is $4, what’s the total market demand?
What happens to total market demand if price rises to $8?
Say that an advertising campaign increases demand by 50 percent. Illustrate graphically
what will happen to the individual and market demand curves.
5. (5 points) You are given the following demand and supply tables:
Demand
Price
D1
$37
47
57
67
D2
20
15
10
5
D3
4
2
0
0
8
7
6
5
Supply
Price
S1
$37
47
57
67
a.
b.
c.
d.
e.
S2
0
0
10
10
S3
4
8
12
16
14
16
18
20
Draw the market demand and market supply curves.
What is excess supply/demand at price $37?
What is excess supply/demand at $67?
Label equilibrium price and quantity.
Explain the difference between a change in quantity demanded and a change in demand.