Reference no: EM13853170

1. The table below shows the production possibilities for the production of capital goods and consumer goods in the country of Harmony.

	A	B	C	D	E	F
Capital goods	0	25	40	50	55	58
Consumer goods	50	40	30	20	10	0
Capital **

Assume that the country is currently producing at output C.

a) Assume capital production increases by 60% . Fill in the new production possibility for capital.

b) If, after the change, Harmony wishes to continue to produce the same amount of consumer goods, how many more capital goods can it now produce? __________

c) What was the opportunity cost of moving to output D before the change in the production of capital goods?

Give up ______  to get _______

d) ) What is the opportunity cost of moving to output D after the change in the production of capital goods?

Give up ______  to get _______

2. The table below shows the demand and supply schedules for wool in Economy XYZ. (Thousands of tonnes per year)

Price ($)	100	200	300	400	500	600	700
Quantity demanded	130	110	90	70	50	30	10
Quantity supplied	10	20	30	40	50	60	70
Qd (**)
Qs (**)

a) What are the values for equilibrium price $_______ and quantity traded _________?

b) If the price of wool is $600 would there be a Surplus/Shortage? ____________; How much? _________

c) Assume that demand increases by 60 at every price. Fill in the new quantity demanded in the space provided (Qd**)

d) What are the new values for equilibrium price $_______ and quantity traded _________?

e) Assume that after the change above supply increases by 50% at every price. Fill in the new quantity supplied in the space provided (Qs**)

f) What are the new values for equilibrium price $_______ and quantity traded _________?

3. In each of the markets below, indicate what effects the changes will have on Demand (increase or decrease); Supply (increase or decrease); Price (increase, decrease, indeterminate); Quantity traded (increase, decrease, indeterminate) 

Market                                                             Demand        Supply       Price         Quantity traded

Orange Juice - A freeze in Florida

occurs at the same time that the price

of apple juice (a substitute) rises.

Cigarettes - Government introduces

an effective anti-smoking policy and

at the same time increases the tax on

cigarettes.

Beer - The legal age for drinking is

increased to 25 and at the same time

technological change reduces the

cost of brewing beer.

Eyeglasses - The cost of producing lens

falls at the same time that wearing

eyeglasses becomes more fashionable.