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 **
|
|
|
|
|
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|
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 (**)
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|
|
|
|
|
|
|
|
Qs (**)
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|
|
|
|
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|
|
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.
