Economics Problems Set 1 Supply & Demand & Government Intervention

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finish the questions in this doc


Problem Set I Name & Section: ____________________________ Note: Academic researchers have shown the strong link between writing information by hand and memory retention. I strongly advise students to complete this by hand. Please take the time to make sure your writing is legible. 1. Introduction to Economics A) Define (in your own words, please do not use the book, or other online resources) and give a strong, unique, example for the following terms. Answers will be checked for originality. Economics: ______________________________________________ _____________________________________________________ _____________________________________________________ exports: ________________________________________________ _____________________________________________________ _____________________________________________________ imports: ________________________________________________ _____________________________________________________ _____________________________________________________ macroeconomics: __________________________________________ _____________________________________________________ _____________________________________________________ microeconomics: ___________________________________________ _____________________________________________________ _____________________________________________________ model: _________________________________________________ _____________________________________________________ _____________________________________________________ scarcity: ________________________________________________ _____________________________________________________ _____________________________________________________ 2. Production Possibilities Frontier A) Define (in your own words, please do not use the book, or other online resources) and give a strong, unique, example for the following terms. Answers will be checked for originality. ________________________________ _____________________________________________________ _____________________________________________________ Allocative vs Productive efficiency: ________________________________ _____________________________________________________ _____________________________________________________ invisible hand: ____________________________________________ _____________________________________________________ _____________________________________________________ marginal analysis: __________________________________________ _____________________________________________________ _____________________________________________________ opportunity cost: ___________________________________________ _____________________________________________________ _____________________________________________________ positive & normative statements: __________________________________ _____________________________________________________ _____________________________________________________ production possibilities frontier: __________________________________ _____________________________________________________ _____________________________________________________ comparative vs. absolute advantage: productive efficiency: ________________________________________ _____________________________________________________ _____________________________________________________ B) Comparative Advantage 1. Country A has 100 workers and Country B has 100 workers. Every worker in Country A can produce 6 tons of wheat per year, or can produce 12 tons of corn per year. Every worker in Country B can produce 2 tons of wheat per year, or can produce 10 tons of corn per year. _____________ a. Which country has an absolute advantage in wheat? b. Which country has an absolute advantage in corn? _____________ c. Which country has a comparative advantage in wheat? _____________ d. Which country has a comparative advantage in corn? _____________ Suppose initially the countries do not trade and Country A has 50 workers producing corn and 50 producing wheat. Country B has 30 workers producing corn and 70 producing wheat. Fill out the following table: Country A Country B Corn Produced Wheat Produced Now the two countries trade with one another. e. What good does Country A specialize in? f. What good does Country B specialize in? _____________ _____________ If these countries have all workers produce the product that their country has a comparative advantage in, how much do they produce? Country A Country B Corn Produced Wheat Produced g. How much more of each good is produced in total with specialization than when there was no trade? Corn: ___________ Wheat: ___________ h. Now suppose Country B improves its technology to produce wheat, and now each worker can produce 4 tons of wheat per year. Are the gains from trade between Country A and Country B higher or lower than before? Why? _____________________________________________________ _____________________________________________________ _____________________________________________________ 2. Suppose that Happy Land produces only two goods—food and suntan oil. Its production possibilities are: Food (pounds per month) Suntan oil (gallons per month) 300 0 200 50 100 100 0 150 Active Land also produces only food and suntan oil, and its production possibilities are: Food (pounds per month) 150 100 50 0 Draw the two PPFs Suntan oil (gallons per month) 0 100 200 300 _____________ Why are the opportunity costs the same at each output level? _____________ What are the opportunity costs of food and suntan oil in Active Land? _____________ a. What are the opportunity costs of food and suntan oil in Happy Land? b. c. d. If each nation specialized where they have a comparative advantage, and then traded, find the acceptable ranges for trade. 1 pound of food would have to trade between which values of suntan oil? ___________ 1 pound of suntan oil would have to trade between which values of food? ___________ e. If each nation produces where they have a comparative advantage, and the terms of trade are 50 pounds of food for 75 gallons of suntan oil, how much will each nation profit by, compared to producing both good themselves? Happy Land__________ Active Land__________ *The numbers in this problem are very easy to work with. Make sure you understand the steps to solve the problem, so you can apply them to problems with more complicated numbers. 3. Supply & Demand A) Define (in your own words, please do not use the book, or other online resources) and give a strong, unique, example for the following terms. Answers will be checked for originality. ceteris paribus: ____________________________________________ _____________________________________________________ _____________________________________________________ factors of production: ________________________________________ _____________________________________________________ _____________________________________________________ inferior v. normal good: _______________________________________ _____________________________________________________ _____________________________________________________ demand: ________________________________________________ _____________________________________________________ _____________________________________________________ law of demand: ____________________________________________ _____________________________________________________ _____________________________________________________ supply: ________________________________________________ _____________________________________________________ _____________________________________________________ law of supply: _____________________________________________ _____________________________________________________ _____________________________________________________ B) Graph, explain & give a detailed example for the following: Explain & give examples: Movement along the demand curve Graph examples: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Explain & give examples: Shift of the demand curve _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Graph examples: Explain & give examples: Movement along the supply curve Graph example: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Explain & give examples: Shift of the supply curve Graph examples: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Graph example: C) Graphing & Predicting Equilibrium Price and Quantity 1. Use blue or black ink to create a graph in equilibrium. 2. Label the axis and the equilibrium price P* and the equilibrium quantity Q* 3. Use RED to show what happens to the market for the following event. 4. Write your prediction for what will happen to Q* & P* after the event. List a few examples that would cause an increase in demand Graph: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium Prediction: _________________ List a few examples that would cause a decrease in demand Graph: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium Prediction: _________________ List a few examples that would cause an increase in supply Graph: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium Prediction: _________________ List a few examples that would cause a decrease in supply Graph: _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium Prediction: _________________ D) Double shifts on the same market. Graph the market for “Good X” in equilibrium. Show (in red) what happens when the price of “Good X” increases. Graph the market for “Good X” in equilibrium. Show (in red) what happens when the price of “Good X” decreases. Equilibrium Prediction: __________ Equilibrium Prediction: ___________ List an example that would cause demand & supply to increase Graph: _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium Prediction: _________________ List an example that would cause demand & supply to decrease Graph: _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium Prediction: _________________ List an example that would cause demand to increase & supply to decrease Graph: _______________________________ _______________________________ _______________________________ _______________________________ Equilibrium Prediction: _________________ E) Solve the mathematical problems below: 1. The demand and supply curves for hotdogs in California are given by the following two equations Q D = 8,000 - 800P Q S = 2,000 + 200P Where QD represents quantity demanded, QS represents quantity supplied and P represents price. a. Find the equilibrium quantity ______________and price: ______________ b. If students suddenly acquire a greater taste for hotdogs, which of the following would be the new demand curve? Circle the correct equation: Q D = 6,500 - 800P Q D = 9,500 - 800P Find the new equilibrium quantity ______________and price: ______________ c. If instead one of the stores selling hotdogs goes out of business, which of the following might be the new supply curve? Circle the correct equation: Q S = 1,200 + 200P Q S = 2,800 + 200P Find the new equilibrium quantity ______________and price: ______________ 2. Consider the following supply and demand model of the world tea market (in billions of pounds.) Price per Pound Quantity Supplied Quantity Demanded $0.38 1,500 525 $0.37 1,000 600 $0.36 700 700 $0.35 600 900 $0.34 550 1,200 ___________ How big? ________ b. Is there a shortage or surplus at $0.34 per pound? ___________ How big? ________ c. Find the equilibrium quantity ______________and price: ______________ a. Is there a shortage or surplus at $0.38 per pound? Graph the supply and demand curves and label the equilibrium, also correctly label your curves and the axes. F) Supply & Demand Graphing For each of the events described below, draw a supply and demand diagram that illustrates the event. Be sure to properly label all axes, curves and relevant points in your diagram. To the left of your graph, write what economists would predict would happen to price and quantity, be sure to denote if the market is in equilibrium in your prediction by using asterisks when necessary. a. Gasoline Market: Strong growth in India, China, and the Middle East has increased worldwide demand for gas. b. Fresh Fruit Market: Walmart, the nation’s largest grocery retailer by far, vows to reduce the costs of growing, picking and transporting fresh fruit. Because it’s now cheaper, families add more fresh fruit to their daily diets. c. Houses in California: Tighter lending standards make it more difficult for many families to borrow money to buy a house. At the same time, thousands of houses taken by banks through foreclosure are offered for sale. d. Market for BMWs in the US: There is a new rebate for all domestically produced cars, BMW has increased the amount of their automobiles that they are willing and able to sell in the US. 4. Government Intervention A) Define (in your own words, please do not use the book, or other online resources) and give a strong, unique, example for the following terms. Answers will be checked for originality. _____________________________________________ _____________________________________________________ _____________________________________________________ price ceiling: _____________________________________________ _____________________________________________________ _____________________________________________________ price floor: ______________________________________________ _____________________________________________________ _____________________________________________________ deadweight loss: ___________________________________________ _____________________________________________________ _____________________________________________________ Market or Social Surplus: ______________________________________ _____________________________________________________ _____________________________________________________ price control: Price Floor _______________________________ _______________________________ _______________________________ _______________________________ Graph: Price Ceiling Graph: _______________________________ _______________________________ _______________________________ _______________________________ B) Solve the following mathematical problems: 1. Consider the market for hamburgers. Price per Pound Quantity Supplied Quantity Demanded $11 6,000 0 $10 5,000 1,000 $9 4,000 2,000 $8 3,000 3,000 $6 2,000 4,000 $4 1,000 5,000 $2 0 6,000 a) Create the graph based on the information above. a.) What is CS: $________ PS: $________ Total Market Surplus (TMS): $ _______ b.) Draw a quota in red so people don’t eat too many hamburgers. What is the new CS: $________ PS: $_________ TMS: $ _________ DWL: $_________ c.) Draw a price ceiling in red so people don’t pay more that $4. What is the new CS: $________ PS: $_________ TMS: $ _________ DWL: $_________ d.) Draw a price floor in red so producers don’t sell for less than $10. What is the new CS: $________ PS: $_________ TMS: $ _________ DWL: $_________

Tutor Answer

Robertmariasi
School: UT Austin

Hello there,As promised i am done with your task. I am attaching to this message a Word file entitled " Problem Set 1" which contains the file you sent me solved. In total there are 27 pages of work. It took a little bit longer than expected because there were a lot of graphics to be done. You have all the information in the file.Looking forward to hearing from you. I will leave tomorrow from the country but i will be back on wednesday if you need any more help.

Problem Set I

Name & Section: ____________________________

Note: Academic researchers have shown the strong link between writing information by hand and
memory retention. I strongly advise students to complete this by hand. Please take the time to make
sure your writing is legible.

1. Introduction to Economics
A) Define (in your own words, please do not use the book, or other online resources) and give a
strong, unique, example for the following terms. Answers will be checked for originality.
Economics: It is defined as being the social science which focuses on understanding the way the
decision of government,companjes or inindividuals influence the economy. More exactly it is a social
science focusing on both describing and also analyzing the production, the consumption and
nevertheless the distribution of both goods and also services. An example is the amount of product a
company needs to produce and at what price in order to gain maximum profit.
exports: It refers to products which are produced by a specific country but they are sold or shipped
to another foreign country. The more a country exports, the higher their level of competitive
advantage will be. An example would be U.S selling and shipping medical equipment to European
countries
imports: It refers to either products or services which are brought to a country by another country
who has produced it. It is an essential component of the international trade together with export. An
example would be the import of oil from Canada to U.S . In this situation U.S is the receiver while
Canada is the produced who sends oil externally to another country.
macroeconomics: It is a study of behavior but not of an individual or a specific company, but the
entire economy is taken into consideration. A great example is represented by the way the decrease
or the increase of the net import will be able to influence the nation’s capital account.
microeconomics: It studies the decisions which are taken by a specific company or by an individual
in regard to the way they organize their goods and services. A good example is represented by the
way a company will decide to lower the price of their good or services in order to be able to increase
the product demand so they can earn profit.

scarcity: Is seen as a fundamental economic problem. It refers to the limitless needs of the
population in comparison with the limited availability of different type of products. Scarcity is what
makes people ensure that they allocate their resources correctly. For examples skilled employees for
a specific company can be seen as a form of scarce resource. In the same way , water in some
countries is seen as a scarce resources which puts people in the situation of trying to recycle as
much as they can.

2. Production Possibilities Frontier
A) Define (in your own words, please do not use the book, or other online resources) and give a
strong, unique, example for the following terms. Answers will be checked for originality.
Allocative vs Productive efficiency: Productive efficiency refers to the ideal method through which
goods are produced (at a lower cost more exactly). On the other hand, allocative efficiency refers to
the optima distribution of the services and also of the goods. For example, a company can be
productive efficient in producing a type of watch (they produce a reasonable amount at a lower
price) , but if no consumers demand it we state it is not allocative efficient.
comparative vs. absolute advantage: If we refer to a country which produces more of specific
resource at a lower price in comparison with another country, we refer to a situation of absolute
advantage. On the other hand, comparative advantage is the possibility of a country to focus on
producing quality goods which they are able to invest the lowest opportunity cost. While absolute
advantage focuses on lower cost per unit, the comparative advantage focuses at lower opportunity
cost. For example when it comes to wine, France it is considered to have absolute advantage in
comparison with U.S because it produced more wine at a lower price.
invisible hand: It is a metaphor which underlines the fact that in the free market economy,
individuals who tend to be self interested will take decisions based on mutual interpedence with the
goal of bringing benefits to the entire society. Briefly, it represents that by seeking to meet it’s self
interest goal, the individual will bring benefits to the entire society. For example the need to have
more fuel efficient cars. In this situation the producers will focus on producing more type of these
cards, the competitive companies will lower their price and try to offer a higher quality car while the
needs of the entire society will be met without the interference of the government.
marginal analysis: It refers to a comparison between the additional benefits which are product by a
specific type of activity when it is compared to the additional cost which is incurred by it. The overall
role of marginal analysis is to increase the company’s profit. An example would be for a company to
decide if producing more of a specific good will increase their profit or it will lower it.
opportunity cost: Is seen as being the benefit that could be brought by an alternative decision. More
exactly, it is what we sacrifice when we decide to choose a different option. For example when a
company decides to produce only red t-shirts, their opportunity cost is represented by the fact that
other color t-shirts could have brought benefits to the company too.
positive & normative statements: Positive Statement focuses on giving a description of society as
...

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Anonymous
Thank you! Reasonably priced given the quality not just of the tutors but the moderators too. They were helpful and accommodating given my needs.

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