Reference no: EM131025952

Spring 2000: Homework 1-

1. Identify whether or not the following statements are normative (N) or positive (P).

a. Tax cuts are always good for the economy. _________

b. The Republican plan for the economy sounds like a better plan than the Democratic plan for the economy. _____________

c. A tax cut will result in households having more income to spend on goods and services. ___________

2. On a separate sheet of graph paper graph the following sets of equations. Each set of equations should be on its own graph and each graph should have the x and y axis labeled, the solution for the two equations identified (i.e., what value of x and y will satisfy both equations) as xe and ye.

a. y = 4x + 10

y = -5x + 2

b. y = 2x + 2

y = -2x + 8

c. x = 6y + 15

x = -2y + 5

d. x = 2y + 4

x = -3y + 14

3. Solve the sets of equations given in problem 2 algebraically. Make sure you show all your work (i.e., do not plug the equations into a calculator to solve).

4. You are given the following information sets and are asked to find the slope, the y-intercept, and the equation for each set of information.

a. Two sets of (X, Y) points that satisfy this equation are (2,4) and (6,8)

i. Slope = _________

ii. Y-intercept = __________

iii. Equation:________________

b. Two sets of (X, Y) points that satisfy this equation are (5, 10) and (-10, 0)

i. Slope = __________

ii. Y-intercept = _____________

iii. Equation: ______________

5. Answer the following questions using the figure given below.

a. Which points are feasible and obtainable for the economy represented in the above graph?_______________

b. Which points are infeasible and unobtainable for the economy represented in the above graph? _______________

c. Which points are efficient points for the economy represented in the above graph? _____________

d. Does this graph illustrate increasing opportunity cost, decreasing opportunity cost or constant opportunity cost? _________

6. Use the following table to answer this question.

Macroland

Production of consumerProduction of capital

Goods in 2000Goods in 2000

1000 units0 units

800 units100 units

600 units200 units

200 units400 units

Assume that this table gives the general relationship between the production of capital and consumer goods in Macroland for the year 2000.There are other feasible points on the PPF of Macroland and the table only gives several points that are possible.

a. What is the maximum amount of capital good production possible in the year 2000 in Macroland?

b. What is the slope of the PPF represented in the above table?

c. If growth is your primary objective, explain where you think this economy should produce and what tradeoffs this choice might represent for this economy.

7. This question is one about absolute and comparative advantage. We will simplify the problem by assuming that both individuals face linear production possibility frontiers and thus have constant opportunity cost with regard to the production of the goods that we will be discussing (note that constant does not mean equivalent opportunity cost).

Suppose that there are two individuals in Macroland and each of them can produce either food or entertainment. Assume that the opportunity cost is constant along the PPF.

BobSue

Food      Entertainment  Food      Entertainment

20                  60           30              60

50                  45           50              40

a. What is Bob's opportunity cost for one more unit of entertainment?

b. What is Bob's opportunity cost for one more unit of food?

c. What is Sue's opportunity cost for one more unit of entertainment?

d. What is Sue's opportunity cost for one more unit of food?

e. In order to achieve the highest level of production, Sue should specialize in producing _________ while Bob specializes in producing _____________.

8. Judy can produce 2 fish in 3 hours or 5 loaves of bread in 2 hours. Mike can produce 3 fish in 4 hours and 3 loaves of bread in 3 hours. Currently, Judy is producing 8 fish and 30 loaves of bread while Mike is producing 9 fish and 12 loaves of bread. Judy and Mike are not trading initially. Assume that Judy and Mike both have 24 hours a day that they can work (i.e., they don't need to sleep).

a. What is the opportunity cost of producing one more fish for Judy?

b. What is the opportunity cost of producing one more fish for Mike?

c. In a single day of 24 hours, who has the absolute advantage in producing fish?

d. Mike should specialize in producing ___________ while Judy specializes in producing ______________

e. If Mike and Judy both specialize, the maximum amount of fish that can be produced is ____________ and the maximum amount of bread that can be produced is ___________________.