Econ 1101 – Lecture 001 – Homework1

                                            Instructor: Salam  Abdus

 

Question1(10 points):-   Al’s Pizza has 30 lbs of dough.  It can be used for either Pizzas or Calzones.  Each Calzone requires 0.5 lbs, each Pizza requires 1 lb.

a)         Draw the Production Possibility Frontier for Al’s business.

b)         What is his opportunity cost of increasing pizza production by 1 unit?

 

 

 Question2(30 points):-     Suppose that in U.S. and Japan, people only consume two goods:-Computers and TVs. Each country has 100 units of labor.

   In Japan ,   5 units of labor are required to produce a computer. 2.5 units of labor are required to produce a TV.

   In U.S.,       2 units of labor are required to produce a computer. 2 units of labor are required to produce a TV.

    

       a) Which country has an absolute advantage in producing TVs? Which country has an absolute advantage in producing computers?

       b) Which country has a comparative advantage in producing TVs? Which country has a comparative advantage in producing computers?

       c) Show how through specializing in goods of comparative advantage , the two countries can expand their total production in both goods.(That is, first assume that both countries employ half of their labor in each good, and compute the total production of computers and TVs. Then switch some units of labor in each country into their good of comparative advantage in such a way that the total production of both computers and TVs increase).

       d)Show that under some favorable terms of trade( that is , an amount of export of TVs from Japan to U.S. such that relative cost of imported good  under this trade is lower than the opportunity cost of producing that good at home, for both the countries), both countries can increase their consumption of both TVs and Computers by that trade.

  

13.   Question3(10 points): In the market for Twins baseball tickets, demand is given by QD = 900 – 5P and supply is given by QS = 100 + 15P.Determine the equilibrium price and quantity of tickets.

 

 

 

 

Question4(30 points):- For each of the following markets

(1)      Draw a reasonable supply and demand curve for the market.  Be sure to properly label the graph.

(2)      Determine what happens to the market after the shock(change in demand and/or supply curve), indicating this on the graph.

(3)      Clearly state whether prices rise, fall, stay the same, or cannot be determined after the shock.

(4)      Do the same for quantities.

 

      a)Kentucky Fried Chicken sells fast food chicken.  Suppose an investigative

report reveals that fast food chicken  is not being checked for the dangerous bacteria, e. coli.  Examine the market for KFC chicken.

                b )Air conditioners are absolute necessities  in Phoenix during the summer(Assume that death occurs with probability one without Air conditioners) .  Trane, Inc. is a major producer of air conditioners.  Suppose one of Trane’s production facilities is destroyed in a fire.  What happens in the market for air conditioners?

               c) Oil refineries are needed to turn crude oil into gasoline.  A new oil refinery is built right next to the U of M; however, because of this placement, many people get disgusted with how much pollution it causes and protest by not using or buying gasoline-burning vehicles.  What happens in the gasoline market?

 

 

Question5(20 points):-Suppose that your demand schedule for Compact Discs is as follows:-

Price ($)

Quantity demanded (Income=$10,000)

Quantity demanded (Income=$12,000)

8

40

50

10

32

45

12

24

30

14

16

20

16

8

12

 

     a)Use the midpoint method to calculate your price elasticity of demand as the price of compact discs increases from $8 to $10 if (1) your income is $10,000 and (2) if your income is $12,000. 

    b)   Calculate your income elasticity of demand as your income increase from $10,000 to $12,000 if (1) the price is $12 , and (2) if the price is $16.