10 Problem Questions
ECON 101: Introduction to Macroeconomics Assignment No. 1 This first assignment must be turned over on February 24th, 2020, at the beginning of the class. Presentation is an essential part of the homework; therefore, it must be hung out in clean sheets. Remember to write down your name and student ID on it. This assignment has 10 problems, you must answer and explain the points in your own words. Problem Set (10 points each) You must be sure you explain the assumptions and thinking you use to solve the problems. Problem set (3.5 points each problem): 1. Suppose a society could produce the following combinations of pizza and books: Alternative Quantity of Pizzas Quantity of Books A 50 0
B 40 10
C 30 18 D 20 24 E 10 28 F 0 30 a. Draw the production-possibilities frontier (PPF) for pizza and books, being as exact as possible. (Put books on the horizontal axis. Assume the dots define a complete curve.)
b. Is it possible or efficient for this society to produce 25 pizzas and 25 books?
c. Is it possible or efficient for this society to produce 25 pizzas and 25 books?
d. If this society is currently producing alternative B, then what is the opportunity cost of moving to alternative A (and getting 10 more pizzas)?
1 e. Is the opportunity cost of producing pizzas higher or lower moving from alternative F to E than moving from alternative B to A? Why is this likely to be so?
f. Suppose that the technologies in producing both pizzas and books improve. Draw one possible new production-possibility frontier in the graph above that represents the results of this change. Indicate the direction of the change that occurs with an arrow.
2. How is the concept of efficiency related to the concept of scarcity? Consider, for example, your own use of time. When do you feel time to be more, and when less, scarce? Do you think how to use your time differently during exam week, compared to when you are on vacation?
3. The market for many goods changes in predictable ways according to the time of year, in response to events such as holidays, vacation times, seasonal changes in production, and so on. Using supply and demand, explain the change in price in each of the following cases. Note that supply and demand may shift simultaneously. a. Lobster prices usually fall during the summer peak lobster harvest season, despite the fact that people like to eat lobster during the summer more than at any other time of year.
b. The price of a Christmas tree is lower after Christmas than before but fewer trees are sold.
c. The price of a round-trip ticket to Paris on Air France falls by more than $200 after the end of school vacation in September. This happens despite the fact that generally wors- ening weather increases the cost of operating flights to Paris, and Air France therefore reduces the number of flights to Paris at any given price.
4. Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events. a. The market for newspapers in your town
Case 1: The salaries of journalists go up.
Case 2: There is a big news event in your town, which is reported in the newspapers.
b. The market for Seattle Seahawks cotton T-shirts Case 1: The Seahawks win the Super Bowl. Case 2: The price of cotton increases.
c. The market for bagels
Case 1: People realize how fattening bagels are.
Case 2: People have less time to make themselves a cooked breakfast.
d. The market for the Krugman and Wells economics textbook
Case 1: Your professor makes it required reading for all of his or her students. Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.
5. In order to ingratiate himself with voters, the mayor of Gotham City decides to lower the price of taxi rides. Assume, for simplicity, that all taxi rides are the same distance and therefore cost the same. The accompanying table shows the demand and supply schedules for taxi rides.
2 Quantity Demanded 10 11 12 13 14 15 Quantity Supplied 12 6.50 11 6.00 10 5.50 9 5.00 8 4.50 7 Table 1: Quantity of Rides (millions per year) a. Assume that there are no restrictions on the number of taxi rides that can be supplied (there is no medallion system). Find the equilibrium price and quantity.
b. Suppose that the mayor sets a price ceiling at $5.50. How large is the shortage of rides? Illustrate with a diagram. Who loses and who benefits from this policy?
c. Suppose that the stock market crashes and, as a result, people in Gotham City are poorer. This reduces the quantity of taxi rides demanded by 6 million rides per year at any given price. What effect will the mayor’s new policy have now? Illustrate with a diagram.
d. Suppose that the stock market rises and the demand for taxi rides returns to normal (that is, returns to the demand schedule given in the table). The mayor now decides to ingratiate himself with taxi drivers. He announces a policy in which operating licenses are given to existing taxi drivers; the number of licenses is restricted such that only 10 million rides per year can be given. Illustrate the effect of this policy on the market, and indicate the resulting price and quantity transacted. What is the quota rent per ride?
6. The U.S. domestic demand schedule and domestic supply schedule for oranges is given in table 2. Suppose that the world price of oranges is $0.30. The United States introduces an import quota of 3,000 oranges and assigns the quota rents to foreign orange exporters. Price of Quantity Supplied orange $1.00
0.90 10 0.80 9 0.70 8 0.60 7 0.50 6 0.40 5 0.30 4 0.20 3 Table 2: Quantity of Oranges (thousands) a. Draw the domestic demand and supply curves. 3 Fare (per ride) $7.70 Quantity Demanded 2 4 6 8 10 12 14 16 18 11 b. What will the domestic price of oranges be after introduction of the quota? c. Illustrate the area representing the quota rent on your graph. What is the value of the quota rents that foreign exporters of oranges receive? 7. When one person saves more, that person’s wealth is increased, meaning that he or she can consume more in the future. But when everyone saves more, everyone’s income falls, meaning that everyone must consume less today. Explain this seeming contradiction.
From Chang’s book (Economics by HA-Joon Chang)
Create a Concept Map of each one of these chapters, you can use software to do this point. If you do not know how to do concept maps you can see this video in YouTube that explains the process: https://www.youtube.com/watch?v=8XGQGhli0I0:
8. Chapter 4.
9. Chapter 5.
10. Chapter 12.