General
Business 765, Lecture 3
Spring
2001
Answers
to Homework #2
1. a.
O.C. of one unit of sugar is one third unit of wheat.
b. O.C. of one unit of wheat is three units of sugar.
c. O.C. of one unit of sugar is ¾ units of wheat.
d. O.C. of one unit of wheat is 4/3 units of sugar.
e. Economy X
f. Neither: Economy X and
Economy Y can both produce 24 units of wheat per day.
g. Economy X
h. Economy Y
i. Suppose they initially produce
ECONOMY |
SUGAR |
WHEAT |
Economy
X |
36
units per day |
12
units per day |
Economy
Y |
16
units per day |
12
units per day |
TOTAL
PRODUCTION |
52
units per day |
24
units per day |
With specialization according to
comparative advantage they could increase production. For example,
ECONOMY |
SUGAR |
WHEAT |
Economy
X |
54
units per day |
6
units per day |
Economy
Y |
8
units per day |
18
units per day |
TOTAL
PRODUCTION |
62
units per day |
24
units per day |
2. a.
Q = 24
b. P = $52/unit
c. CS = $576
d. PS = $576
e. Consumer Expenditure = $1248
f. P = -60 + 2 Q
g. Price with the subsidy = $20/unit
h. $64/unit
i. $2560
j. If demanders are subsidized, they will pay price with the subsidy
of $84/unit in order for consumption to equal 40 units. The cost of the subsidy to the government
will still be $2560.
4. a. (E), (U) and/or (N); (F) if (U)
b. (D) and/or (N)
c. (N)
d. (U); (F)
e. (N)
f. (N)
g. (E) or (N) (depends on the age of teen)
h. (U); (ST)
i. (U); (C)
j. (U); (S)
k. (U); (F)