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Assignment 1

The document consists of an assignment on microeconomics with various questions covering concepts such as production possibilities frontier, supply and demand, equilibrium price and quantity, income elasticity, and market demand schedules. It includes scenarios involving military and consumer goods, price changes for Christmas trees, effects of drought on beef and chicken markets, and the impact of wage changes on coffee prices. Additionally, it addresses the elasticity of demand for pens and the calculation of consumer and producer surplus in competitive markets.

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Yousuf Aboya
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24 views3 pages

Assignment 1

The document consists of an assignment on microeconomics with various questions covering concepts such as production possibilities frontier, supply and demand, equilibrium price and quantity, income elasticity, and market demand schedules. It includes scenarios involving military and consumer goods, price changes for Christmas trees, effects of drought on beef and chicken markets, and the impact of wage changes on coffee prices. Additionally, it addresses the elasticity of demand for pens and the calculation of consumer and producer surplus in competitive markets.

Uploaded by

Yousuf Aboya
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Assignment 1

Microeconomics

Q1. Imagine a society that produces military goods and consumer goods, which we’ll call “guns”
and “butter.”
a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity
cost, explain why it most likely has a bowed-out shape.
b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but
inefficient.

Q2. In December, the price of Christmas trees rises and the number of trees sold also rises. Is this
a violation of the law of demand?

Q3. The drought in the plain states has made grain, and therefore feed, quite expensive. Many
ranchers cannot afford to feed their cattle, and have sold much of their herd for slaughter.

a. What will be the immediate effect of this event on the equilibrium price and quantity of
beef? Illustrate using a supply and demand diagram.
b. Chicken and beef are substitute goods. Illustrate the effect that the slaughter of the cattle
herds will have on the equilibrium price and quantity of chicken.
c. As it happens, the slaughter of beef cattle has coincided with a decrease in consumers'
income. Assuming that steak is a normal good while hamburgers are an inferior good, use
a supply-and-demand diagram for either market to illustrate the combined effect of the
two aforementioned events on the equilibrium price and quantity of hamburgers and
steak.

Q4. Wages of workers who pick coffee rise. At the same time, the price of half-and-half (a
complement for coffee) decreases. How these events affect the market equilibrium price and
quantity of coffee.

Q5. The average annual income rises from $25,000$25,000 to $38,000$38,000, and the quantity
of bread consumed in a year by the average person falls from 3030 loaves to 2222 loaves. What
is the income elasticity of bread consumption? Is bread a normal or an inferior good?

Q6. The figure illustrates the competitive market for cell phones.
a. What are the equilibrium price and equilibrium quantity of cell phones?
b. Shade in and label the consumer surplus at the competitive equilibrium.
c. Shade in and label the producer surplus at the competitive equilibrium.
d. Calculate total surplus at the competitive equilibrium.

Q7. The table gives the demand schedules for train travel for the only buyers in the market, Ann,
Beth, and Cy

a. Construct the market demand schedule.


b. What are the maximum price that Ann, Beth, and Cy are willing to pay to travel 20 miles?
Why?
c. What is the marginal social benefit when the total distance travelled is 60 miles?
d. What is the marginal private benefit for each person when they travel a total distance of 60
miles and how many miles does each of the people travel?

Q8. The figure shows the demand for pens.


Calculate the elasticity of demand when the price rises from $4 to $6 a pen. Over what price range is the
demand for pens elastic?

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