Demand and Supply Assignment
Topic: What is Economics; The Economic Problem; Demand and Supply
Ch 1 – 7
Opportunity cost – is something that you lose when you take other choice. In this case, he loses $6000 by taking trip. $6000 is what he would have made if he didn’t take the trip.
Ch 2 - 28
Graph 1 Graph 2
- Inland: MOC of A is 100/200=1/2B; MOC of B is 200/100= 2A
Outland: MOC of A is 150/150= 1B; MOC of B is 150/150= 1A
- Inland produces A because it’s MOC of producing A is lower. Outland produces B.
- Inland is willing to pay up to 2A for 1B. Outland, up to 1B for 1A. Country’s MOC for the good is the maximum price that country would be willing to pay. In the case of the exchange rate is higher than country’s MO, it will be cheaper to manufacture the goods inside the country.
- Inland can buy 200*2/3 = 133.33B. Outland can buy 150*3/2 = 225A. Gains from trade come about because by specializing and trading at reasonable exchange rates, both countries can have more of both goods than if they operated in isolation.
- Inland and Outland experience gain from trade, because these countries trade and specialize at exchange rates. Moreover, if these countries would work separately they can get more profits.
Ch 2 - 29
- Based on marginal score and then she gets 2 to Philosophy, 2 to Econ and 1 to French OR she can does 2 to Philosophy and 3 to Econ (both are right).
- Then it’s 2 to Philosophy, 1 to French and 2 to Accounting.
- Then it’s 2 to French, 2 to Philosophy and 1 to Econ.
Ch 3 - 51
Bush was wrong. The embargo decreases supply. So the supply curve moves horizontally to the left by 4.3 million barrels a day. The shortage of oil appears at the original equilibrium price. In the result of this, the market price of oil is increases. Increased price on oil causes the increase in quantity supply of oil. if the price wasn't be increased, the quantity supplied wouldn't be increased. S1 curve restored 2/3 of the daily production that was lost. (graph 3)
Ch 3 – 53
Let X = number of tires per month and P = price per tire
Equation A: X=500-2P
Equation B: X= -25+P
- The demand curve represents - equation A. The slope of the price per tire is negative = -2. It shows that when the quantity demand decreases, the price per tire increases.
- The supply curve presents - equation B. The slope of the price per tire = 1. It shows that the quantity supplied of tires increases when the price increases.
500-2P = -25+P
P* = 175
X*= 500 – 2*(175) = 150
- Demand Curve: X=500-2P
Supply Curve: X=-25+P
- The quantity quota (Xquota) must be below X*, it means that Xquota should be in the range from 0 to 150 to be binding.
- Sellers produce Xquota=75 with P0=100. However they could sell tires with higher price P1=212.5, because the demand for tires that would be ready to pay up to this price (212.5), with Xquota=75. Thesupply is curve up to X=75 and then supply becomes vertical at X=75. The new equilibrium price is higher than P*=175. (graph 4)
- If the price floor imposed is P1=212.50 at this price sellers want to sell 187.50.
Xs= -25 + P1 = -25 + 212.50 = 187.50
However buyers want to buy only 75
Xd = 500-2P1 = 500-2*212.50 = 75.
187.5 – 75 = 112.5 it is a surplus. (graph 4)