General
Business 765, Lecture 3
Spring
2001
Homework
#2
Due
2/21/01
1. (24 points) Each entry in the following table gives production information
about two economies: Economy X and
Economy Y. Assume that both economies
have an equal number of hours available for production and equivalent amounts
of resources.
ECONOMY |
SUGAR |
WHEAT |
Economy X |
3 units per hour |
4 units per four hours |
Economy Y |
8 units per six hours |
3 units per three hours |
a. (3
point) What is the opportunity cost of
producing a unit of sugar for Economy X?
b. (3 point) What is the
opportunity cost of producing a unit of wheat for Economy X?
c. (3 point) What is the
opportunity cost of producing a unit of sugar for Economy Y?
d. (3 point) What is the
opportunity cost of producing a unit of wheat for Economy Y?
e. (2 point) Which economy has the absolute advantage in the production
of sugar?
f. (2 point) Which economy has the absolute advantage in the production
of wheat?
g. (2 point) Which economy has
the comparative advantage in the production of sugar?
h. (2 point) Which economy has the comparative advantage in the
production of wheat?
i. (4 points) Provide an
example of how these two economies by specialization and trade can enhance the
total amount of sugar and wheat available to them.
2. (26 points)
Consider the market for good X.
Suppose the demand curve for this product is given by
P = 100 - 2Q
And
the supply curve for this product is given by
P = 2Q + 4
a. (2 point) What is the
equilibrium quantity for this good?
b. (2 point) What is the
equilibrium price for this good?
c. (2 point) What is the
consumer surplus equal to for this good?
d. (2 point) What is the
producer surplus equal to for this good?
e. (2 point) Consumer
expenditure on this product equals _________________.
The
government decides that they would like to encourage consumption of this
good. They decide that they will pay
suppliers a subsidy for the production of this good in order to encourage both
a higher level of production and a higher level of consumption. Suppose the government wants consumption of
this good to be equal to 40 units.
f. (4 point) What will be
the equation for the new supply curve once the subsidy is in place?
g. (2 point) What is the new
equilibrium price for this good once the subsidy is in place?
h. (4 point) What is the
subsidy per unit equal to in this case?
i. (4 point) What is the
total cost of the subsidy to the government?
j. (2 point) Suppose instead
of paying the subsidy to producers, the government chose to pay the subsidy to
consumers of the good. How would this
change alter your results?
3. (16 points)
Briefly identify the following terms.
a. Real GDP
b. Aggregation
c. Double counting
d. Non-market activities
e. GNP
f. Full employment
g. Cyclical Unemployment
h. Expenditure Approach to GDP
4. (26 points)
Which of the following are unemployed (U), discouraged workers (D),
employed (E), or not in the civilian labor force (N) according to official
statistics?
a. (2 points) A person who
quits their job after deciding their wage rate is too low.
b. (2 points) A single mother who after looking for a job for
several months quits looking because she is convinced that she will not be able
to find suitable work.
c. (2 points) A full-time college student.
d. (2 points) A recent high school graduate who is currently seeking
employment.
e. (2 points) A soldier in the Army.
f. (2 points) A man who is institutionalized due to the severity of
his mental illness.
g. (2 points) A teenager who works without pay for 20 hours a week
at their family-owned restaurant.
h. (2 points) A man who is laid off at his manufacturing plant due
to the implementation of a new robot-assembly line.
i. (2 points) A woman who is laid off due to a reduction in orders
for the product she produces.
j. (2 points) A snow ski instructor works on their suntan May
through October while waiting for the slopes to open.
k. (2 points) A stay-at-home Mom who seeks employment now
that her last child has left home.
l. (4 points)
For all those answers (a) through
(k) that you marked as U, identify whether the individual is frictionally unemployed
(F), cyclically unemployed (C), seasonally unemployed (S), or structurally
unemployed (ST).
5. (8 points)
Select one of the Krugman essays (not the one you previously wrote
about) and briefly discuss its main points.
Evaluate the strength of Krugman’s arguments: provide examples to support and defend your views.