Reference no: EM131576089

Q1. In the Kingdom of Bristol they can produce Orange Road Cones and Christmas Bells based on the following schedule:

Cones Bells		Cones Bells		Cones Bells
0 550		170 450		260 190
50 540		200 400		270 100
95 520		225 340		275 0
135 490		245 270

a) Find the opportunity cost of producing an additional Cone if the economy is currently producing 135 cones, 225 cones and 260 cones. Explain why the trend in these costs makes sense.

b) Assume that the PPF is graphed so that Bells are on the horizontal axis. Find the slope of the PPF between 270 and 340 bells (you don't need to draw the PPF to do this but it's ok if you do) and explain why this number is related to one of your answers in (a).

Q2. Consider two individuals, Fred and Barney. In one hour, Fred can produce either 15 gallons of beer, or 3 gallons of wine. In one hour, Barney can produce 2 gallons of beer or 4 gallons of wine. Assume both goods can be produced in continuous quantities.

a) Explain who has the comparative advantage in producing each good. Specific calculations of opportunity cost should be part of your explanation. Use this information to help draw the PPF for the entire economy for one hour if Fred and Barney work together with wine on the horizontal axis. Be sure to put specific numbers on each intercept. Give specific values for the MRT at each point and identify any point where the MRT changes.

b) Assume that each person wants to consume 3 gallons of wine, then as much beer as they can. Determine what each person will end up consuming i) when they cannot trade.

ii) when they can trade at a price of 1gallon wine = 2 gallons beer.

Use this to explain why trade benefits both consumers.

Q3. A new synthetic compound has been developed by scientists that can be used instead of leather in briefcases, furniture, etc. This compound cannot be used in clothing or shoes since body head melts the compound.

a) Draw a supply and demand diagram and explain how this change affects the market for leather. Be sure to specifically state which curve you shifted and why. Also indicate how equilibrium price and quantity have changed.

b) How will the changes in (a) affect the market for shoes? Draw a supply and demand diagram for the shoe market and explain how this change affects the market for shoes. Be sure to specifically state which curve you shifted and why. Also indicate how equilibrium price and quantity have changed.

c) Given your answer to (b), draw a supply and demand diagram showing the effect on the shoelace market (note: Shoelaces are not made of leather or this new compound). . Be sure to specifically state which curve you shifted and why. Also indicate how equilibrium price and quantity have changed.

Q4. Mr. Peanut, Mr. Tree, Mr. Shrub, Mr. Sax, and Mr. Hoops are the only demanders of elliptical shaped, bleached finished desks. The only two producers of these desks are Oval Office Furniture and White House Interiors. Below is the supply schedule for both these firms and the demand schedules for the 5 consumers:

Peanut Tree Shrub Sax Hoops

P Q P Q P Q P Q P Q

50 7 50 12 50 8 50 18 50 3 100 5 100 8 100 5 100 17 100 2

150 3 150 4 150 3 150 16 150 1

200 1 200 0 200 2 200 15 200 0

250 0 250 0 250 1 250 14 250 0

300 0 300 0 300 0 300 13 300 0

Oval Office White House

P Q P Q

50 0 50 3

100 2 100 5 150 4 150 7

200 7 200 11

250 10 250 18

300 15 300 28

a) Make a table representing the market demand, and a 2nd table representing the market supply. Use this information to find the market equilibrium price and quantity.

b) Suppose that something happens to either one of the demanders or one of the suppliers. This results in a market price of 150 and a market quantity of 11. Was the change to a supplier or a demander? How can you tell? Can you be more specific about which specific supplier or demander had a change?