six problems
Microsoft Word - 101hw1f21 Professor Chisholm Economics 101D&E September 15, 2021 HOMEWORK #1 DUE DATE: WEDNESDAY, SEPTEMBER 22, 2021 This homework assignment is required and will be graded. Only homework submitted at the start of class on the due date will be accepted. You must show all formulas that you use and how you use them. Work problems neatly and in a logical, organized manner. Be sure to label all axes and graphs in your graphical analysis. PROBLEM #1 Jane recently graduated from college and had to decide on her plans for the first year following graduation. She had the opportunity to work for the Peace Corps, earning $33,000 in the first year. Jane also received an offer for an entry-level data analyst position with a salary of $42,000 for the year. She had also applied to, and was accepted to, a Master’s in Data Science program, with a tuition cost of $53,000 for the year. Jane decided to attend graduate school; she viewed the data analyst position as her next-best alternative. Which of the following statements (A, B, or C) best describes the opportunity cost of Jane’s choice. Briefly explain your answer. Statement A: “The opportunity cost of attending graduate school includes all of the following: the monetary cost of tuition of $53,000; the $42,000 salary given up by not working as an analyst; and the $33,000 salary given up by not working for the Peace Corps.” Statement B: “The opportunity cost of attending graduate school includes all of the following: the monetary cost of tuition of $53,000; the $42,000 salary and value of the experience in data analytics given up by not working as an analyst; and the $33,000 salary and value of the experience given up by not working for the Peace Corps.” Statement C: “The opportunity cost of attending graduate school is the monetary cost of tuition of $53,000 and the $42,000 salary and value of the experience in data analytics given up by not working as an analyst.” PROBLEM #2 For each statement (a-d), determine whether it is positive or normative. Briefly explain each answer. a. The unemployment rate in Greece is 14.6%. b. The new 1.25% tax in Britain on workers’ earnings, to fund social care and health care, is fair. c. The average rent for a one-bedroom apartment in Boston in 2021 is $2,420. d. The Boston City Council should enact a rent control policy that requires landlords to charge no more than $1,800 per month for a one-bedroom apartment. PROBLEM #3 The production possibilities of an island nation, given its available resources, are presented below: Point Wine (Bottles) Cheese (Pounds) Opportunity Cost per Pound of Cheese (in Bottles of Wine) A 600 0 B 520 80 C 400 140 D 220 185 E 0 205 a. Using the information given above, complete the table, by finding the opportunity cost (bottles of wine given up) per pound of cheese, between each of the points (A to B; B to C; C to D; and D to E). b. Sketch a graph of the production possibilities frontier for this nation, with wine on the vertical axis and cheese on the horizontal axis. Clearly state whether your graph bows outward, bows inward, or is linear. c. Does the Law of Increasing Opportunity Costs apply to this nation? d. If this nation wishes to produce 120 pounds of cheese and 220 bottles of wine, is this combination attainable, efficient, or unattainable? PROBLEM #4 Jack and Mel are both able to wash windows and sweep rooms. If Jack spends a full day on washing windows, he can wash 80 windows; if he spends the whole day on sweeping rooms instead, he can sweep 20 rooms. Mel can wash 90 windows if he spends the whole day on windows, and he can sweep 30 rooms if he spends the whole day sweeping instead. a. Determine which person has an absolute advantage in washing windows. Who has an absolute advantage in sweeping floors? Briefly explain your answer. b. Determine which person has a comparative advantage in washing windows and who has a comparative advantage in sweeping rooms. Briefly explain your derivation. c. If an individual has an absolute advantage in an activity, does that person necessarily have a comparative advantage in that activity? Briefly explain your answer. d. For each person (Jack and Mel), determine the activity in which he should specialize in order to gain from trading, according to the principle of comparative advantage. PROBLEM #5 The tables below provide information on the relationship between the price of a product and either the quantity supplied by producers, or the quantity demanded by consumers. The first table represents the supply schedule, and the second represents the demand schedule. Supply Demand Price Quantity Supplied Price Quantity Demanded 5 3 5 99 9 11 9 75 13 19 13 51 17 27 17 27 21 35 21 3 a. With price as the vertical (y-axis) variable, and quantity supplied as the horizontal (x- axis variable), calculate the slope of the supply curve. (You may find it helpful to use graph paper to plot the points on the supply curve.) b. Once again, with price as the vertical (y-axis) variable, and now quantity demanded as the horizontal (x-axis variable), calculate the slope of the demand curve. (You may find it helpful to use graph paper to plot the points on the demand curve.) c. Find the equilibrium price and quantity in this market. PROLBEM #6 For parts a through c of this problem, state whether demand or supply will change (only one will change in each case). State whether the equilibrium price and quantity will rise or fall in the indicated market as a result of each change described. Illustrate each answer with a graph using supply-and-demand graphical analysis. Briefly explain each answer. Follow the separate instructions for part d. a. Due to concerns about the spread of Covid-19, and the rise in the number of mask mandates across the country, the need for people to own masks has increased. Determine the impact on the market for masks. b. The European Union (EU) recently removed the United States from its “safe list” for travel to EU countries. Determine the impact on the market for international airline tickets from the United States to the EU. c. The drought conditions in the Midwest this summer have harmed wheat production, resulting in higher prices for wheat. Determine the impact on the market for cereal made from wheat. d. For this part of the problem, consider two changes impacting the market for fast-food hamburgers. Suppose that a new study shows that hamburger consumption increases the risk of heart disease to a much greater extent than previously thought. At the same time, suppose that the cost to hamburger suppliers has increased due expensive new government regulations for food processing. Which of these changes will impact the supply and which will impact the demand in this market for fast-food hamburgers? Without any further information, can we predict the direction of change in equilibrium quantity? Without any further information, can we predict the direction of change in equilibrium price? Demonstrate your answer graphically using supply-and-demand analysis and briefly explain your answer.