Opportunity Cost, Supply And Demand

Homework #1 Economics 102 – Microeconomics Professor Schenk Due: July 6, 2009 1. Find three blogs which discuss economics. Write the name of blog and the web address. 2. Go to www.politicalcompass.org/test and fill out the form. Which quandrant (square) 3. On Wednesday, June 29th the class met for the first time. What were your alternatie options instead of attending class? Assume you were able to skip class that night without incurring a penalty, what was your total opportunity cost expressed in dollars? 4. Recent census estimates shows the median income for an individual with a high school diploma is $21,079. Meanwhile, the tuition for a full-time Grand View student is $18,234. (Reference: http://www.census.gov/population/socdemo/education/cps2006/tab08-1r.xls) a. What is the accounting cost of a high school graduate attending Grand View for a year? b. What is the opportunity cost of a high school graduate attending Grand View for a year? 5. The median earnings for Bachelor degree recipients is $40,166. Students will forgo some consumption early in life (e.g., car, clothing, nice housing) for more consumption later in life. This concept is called intertemporal trade-off. Below is a table showing consumption early in life and later in life: Current Future Consumption Consumption 100 800 260 750 340 650 380 600 400 550 a. Draw a production possibilities frontier with current consumption on the x-axis. b. What is the opportunity cost of moving from 100 units of current consumption to 260 units? Simiarly, the opportunity cost of moving from 260 units to 340 units?

c. What is the slope of the production possibilities frontier when moving from 100 units of current consumption to 260? When moving from 340 to 380? d. Does the table exhibit increasing, constant, or decreasing marginal opportunity cost? 6. Suppose there are two countries—United States and Uganda—and two types of goods—textiles and c omputers. Below is the production schedule for each country: United States Uganda Computers Textiles Computers Textiles 0 4,000 0 5,000 1 3,000 1 2,500 2 2,000 2 0 3 1,000 3 0 4 0 4 0 a. Draw the production possibilities frontier for both countries with computers on the x-axis. b. Draw the combined production possibilities frontier. c. Which country, if any, has the comparative advantage for producing computers? Why would that country have the comparative advantage? d. Label the point where trade will occur. Mark it as point ‘T’. e. Should countries engage in trade? Why or why not? 7. Again, consider two countries producing textiles and computers with the following production schedule: United States Canada Computers Textiles Computers Textiles 0 4,000 0 2,000 1 3,000 1 1,000 2 2,000 2 0 3 1,000 3 0 4 0 4 0 a. Draw the production possibilities frontier for both countries with computers on the x-axis. b. Which country, if any, has the comparative advantage for producing computers? Why does this response differ from 6b? c. Should countries engage in trade? Why or why not? 8. Consider the following market supply and demand schedule: Quantity Quantity Price Demanded Supplied 10 100 20 20 75 50

30 50 80 40 25 110 a. Draw the supply and demand curves with the y-axis labelled “price” and x-axis labelled “quantity”. b. What is the equilibrium price? c. How many units will be sold at the equilibrium price? You’re done!