Project #2865 - Micro

 

Professor: Moonsu (Moon) Han

 

Total 25 points.

 

Question 1 Define following terms. (Total 5 pts., 1 pt each)

 

 

 

1.      PPF:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.      Cross Price Elasticity of Demand:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.      Opportunity Cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.      Inferior good:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.      Substitutes vs. Complementary goods:

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 2 American and Italian workers can each produce 100 cars a year. An American worker can produce 1,000 bottles of wine a year, whereas an Italian worker can produce 2,000 bottles of wine a year. Assume that each country has 1,000 workers. (Total 6 pts, 1 pt. each except part 5 which is 2 pts.)

 

 

 

1.      Graph the production possibilities frontier of the American and Italian economies.

 

                  Cars

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                              Wine

 

 

 

2.      For the US, what is the opportunity cost of a car? Of wine? For Italy, what is the Opportunity cost of a car? Of wine? Put this information in a table analogous to same table as we did in our class.

 

 

 

OC of 1 Table

 

 

Car

Wine

U.S.

 

 

Italy

 

 

 

 

 

3.      Which country has an absolute advantage in producing cars? In producing wine?

 

Which country has a comparative advantage in producing cars? In producing wine?

 

 

 

AA in producing Cars:

 

AA in producing Wine:

 

 

 

CA in producing Cars:

 

CA in producing Wine:

 

 

 

4.      Without trade, half of each country’s workers produce cars and half produce wine. What quantities of cars and wine does each country produce?

 

Output Table

 

 

Car

Wine

U.S.

 

 

Italy

 

 

 

 

 

5.      Starting from a position without trade, give an example on which trade makes each country better off.

 

 

 

 

Car

Wine

U.S.

 

 

Italy

 

 

 

 

 

Question 3 Using supply-and-demand diagrams, show the effect of the following events on the market for Pepsi. Need to show changes of price and quantity. (Total 6 pts, 1.5 pts. each)

 

 

 

1.      A decrease in the supply of Coke.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


                                                                                        

 

 

 

2.      A drop in the average household income in the US from $43,000 to $41,000. (Assume Pepsi is a normal good)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


                      

 

                                                                  

 

3.      An improvement in soft-drink bottling technology.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


4.      An increase in the price of sugar (Assume sugar is a major input for Pepsi).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Question 4Suppose that your demand schedule for DVDs is as follows. (Total 8 pts.)

 

 

 

Price

Quantity Demanded (Income = $5,000)

Quantity Demanded (Income = $10,000)

$8

500

400

$10

400

300

$12

300

200

$14

200

100

$16

100

50

 

 

 

1.      Use the midpoint method to calculate your price elasticity of demand as the price of DVD decreases from $16 to $8 if (i) your income is $5,000 and (ii) your income is $10,000. (4 Pts.)

 

(i)                 I = $5,000                                                         (ii) I = $10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.      Calculate your income elasticity of demand as your income decreases from $10,000 to $5,000 if (i) the price is $10 and (ii) the price is $16. (4 Pts.)

 

(i) P = $10                                                                               (ii) P = $16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject Business
Due By (Pacific Time) 03/04/2013 08:00 pm
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