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Suppose that two people, Michelle and James each live alone in an isolated region. They each have the same resources available, and they grow potatoes and raise chickens. If Michelle devotes all her resources to growing potatoes, she can raise 200 pounds of potatoes per year. If she devotes all her resources to raising chickens, she can raise 50 chickens per year. (If she apportions some resources to each, then she can produce any linear combination of chickens and potatoes that lies between those extreme points. If James devotes all his resources to growing potatoes, he can raise 80 pounds of potatoes per year. If he devotes all his resources to raising chickens, he can raise 40 chickens per year. (If he apportions some resources to each, then he can produce any linear combination of chickens and potatoes that lies between those extreme points.)
PotatoesChickensMichelle20050James8040What is Michelle's opportunity cost of producing potatoes?What is Michelle's opportunity cost of producing chickens?What is James' opportunity cost of producing potatoes?What is James' opportunity cost of producing chickens?Which person has an absolute advantage in which activities?Which person has comparative advantage in potatoes?Which person has comparative advantage in chicken?Suppose that they are thinking of each specializing completely in the area in which they have a comparative advantage, and then trading at a rate of 2.5 pounds of potatoes for 1 chicken, would they each be better off? Explain.How would you extend the above narrative to businesses, society as a whole or nations?
Andre walks Julia's dog once a day for $50 per week. Julia values this service at $60 per week, while the op-portunity cost of Andre's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is total s..
Suppose that investment demand increases by $100. Assume that households have a marginal propensity to consume of 80 percent. Compute the first three rounds of multiplier effects as follows: a) What are the first cycle changes in spending? Total cu..
Q= -3 + 8.5L - 2L^2 Q is toys per hour, L is workers employed per hour. Charges $20 per toy. Workers paid $10 hour. Firm has $50 fixed costs per hour. What is marginal product labor (MPL) What is marginal revenue product
ASB2505-3505 - Comparative Banking Review the theoretical relationships between market structure and bank performance and explain what is meant by market power and how it affects bank performance.
If the world price is still $50 per barrel of oil and the U.S. instead institutes a quota (a limit on the quantity imported) of barrels of 9 million barrels, what are the new consumer surplus, producer surplus, license holder revenue and deadweigh..
The government is considering two alternative types of taxes. The first is a tax on interest income, the second is a tax on labour income. Both are to be imposed at rate t (i.e., t=.20, or 20%). Your job is to help the government understand the im..
Suppose honey is produced in beehive using bees and sugar. Each honey producer uses one beehive which she rents for $1/month. Producing q gallons of honey requires spending q dollars on bees and q^2 on sugar.What is the Total cost of producing q un..
Suppose that a model of the economy suggests that the real interest rate is determined by the equation r= 8.35-%^Y where Y is the level of output, so %^Y is the growth rate of output. Suppose that people expect the Fed to hit its inflation targetI..
Country A produces two goods, elephants and saddles. In the year 2006, the 100 units of elephants produced sold for $2,500 per unit and the 30 units of saddles produced sold for $200 per unit. In 2007, the 120 units of elephants produced sold for ..
Suppose that the price of apples falls to $12 per box, but the wage rate remains at $200. Now, live happley should hire? (1,2,3,4,5 workers) Assuming that all the apple-producing firms have a similar production schedule, a decrease in the price o..
In the Keynesian cross, assume that the consumption function is given by: C=200+0.75 (Y-T). PLanned investment is 100, government purchases and taxes are both 100. a. Graph planned expenditure as a fraction of income. b. What is the equilibrium lev..
Mirk Labs is a British pharmaceutical company that currently enjoys a patent monopoly in Europe, Canada, and the United States on Zatab (pronounced zay-tab), an allergy medication. The global demand for Zatab is: Qd=15.0-0.2P
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