Reference no: EM132631342
Problem 1
Question 1- A clothing accessory company produces scarves and earrings. Below are the production possibility combinations it can produce with the resources that it has.
|
Scarves
|
Earrings
|
|
10
|
0
|
|
9
|
50
|
|
8
|
90
|
|
7
|
120
|
|
6
|
145
|
|
5
|
165
|
|
4
|
185
|
|
3
|
200
|
|
2
|
215
|
|
1
|
225
|
|
0
|
230
|
a. Draw the production possibility curve in the space below
b. Suppose technological advances increase production of both earrings and scarves by 10% without increasing costs. Demonstrate the effect of this innovation on the production possibility curve you drew above.
Question 2- Stuffed-Crust Pizza is a new pizza introduced by Pizza Hut. What happens to the equilibrium price and equilibrium quantity of Stuffed-Crust Pizza in each of the following situations?
a. Due to weather conditions, the output of wheat decreased and the price of wheat flour increased.
b. The price of beer decreased.
c. Domino's Pizza introduced a similar pizza that sold for $1 less than the one sold by Pizza Hut.
d. A recession reduced households' income.
e. A new oven technology reduced the time it takes to bake a pizza.
Question 3- The market for Columbian coffee beans is given in the diagram below. The market is currently in equilibrium with a price of P0 and a quantity exchanged of Q0. Suppose that the Columbian government takes over the production and distribution of all coffee beans grown in Columbia. In an effort to increase revenue from the sales of coffee beans, the government decides to raise the price above P0. Describe why it would take more effort for the government to raise the price to P2 than it would for it raise the price to P1.
Question 4- Complete the tables below. Draw the market demand and supply curves on a graph and indicate the equilibrium price and quantity in the market. Label the equilibrium as E1
|
Price
|
Consumer 1
|
Consumer 2
|
Consumer 3
|
Market Demand
|
|
$3
|
20
|
25
|
30
|
|
|
$3.50
|
19
|
22
|
27
|
|
|
$4
|
17
|
21
|
26
|
|
|
$4.50
|
15
|
19
|
23
|
|
|
$5
|
14
|
18
|
22
|
|
|
$5.50
|
12
|
16
|
20
|
|
|
Price
|
Producer 1
|
Producer 2
|
Producer 3
|
Market Supply
|
|
$3
|
20
|
13
|
14
|
|
|
$3.50
|
25
|
15
|
16
|
|
|
$4
|
27
|
18
|
19
|
|
|
$4.50
|
30
|
20
|
25
|
|
|
$5
|
35
|
25
|
32
|
|
|
$5.50
|
45
|
30
|
40
|
|
b- Suppose that a new firm, Producer # 4, enters the industry as indicated below. Find the new market supply and determine the new equilibrium price and quantity in the market. Draw the new curve and equilibrium on the same graph as above and label the equilibrium as E2
|
Price
|
Producer 1
|
Producer 2
|
Producer 3
|
Producer 4
|
Market Supply
|
|
$3
|
20
|
13
|
14
|
20
|
|
|
$3.50
|
25
|
15
|
16
|
22
|
|
|
$4
|
27
|
18
|
19
|
26
|
|
|
$4.50
|
30
|
20
|
25
|
30
|
|
|
$5
|
35
|
25
|
32
|
35
|
|
|
$5.50
|
45
|
30
|
40
|
40
|
|
c- Starting with the result you have from question 2 (4producers) suppose that consumers' tastes change such that the chart below indicates their new preferences. Complete the chart, find the new equilibrium (label as E3) and show it on the same graph above.
|
Price
|
Consumer 1
|
Consumer 2
|
Consumer 3
|
Market Demand
|
|
$3
|
40
|
25
|
30
|
|
|
$3.50
|
35
|
23
|
27
|
|
|
$4
|
33
|
21
|
26
|
|
|
$4.50
|
30
|
19
|
23
|
|
|
$5
|
25
|
17
|
22
|
|
|
$5.50
|
20
|
16
|
20
|
|
d- Consider the following table
Suppose that the market demand will increase by 63 units at all the price levels. Draw the new Demand curve on the same graph. What are the new equilibrium quantity and equilibrium price of coffee?
|
Price
|
Market Demand
|
Market Supply
|
|
$3
|
95
|
67
|
|
$3.50
|
85
|
78
|
|
$4
|
80
|
80
|
|
$4.50
|
72
|
105
|
|
$5
|
64
|
127
|
|
$5.50
|
56
|
155
|
Attachment:- chapter exercice.rar