Question

Question 5: (5 points) Using the PPC table below, calculate the opportunity cost of producing one more of one good in terms of the other (as asked below), between each point (between A & B; B & C; etc.). Don't Include the negative sign or the words 'Capital' or 'Consumer' Combination Consumer Capital A 0 653 B 160 640 C 320 599 D 480 523 E 640 392 F 800 0 1. What is the opportunity cost of one consumer good from A to B ____________ 2: What is the opportunity cost of one consumer good from B to C ____________ 3: What is the opportunity cost of one consumer good from C to D ____________ 4: What is the opportunity cost of one capital good from F to E ____________ 5: What is the opportunity cost of one capital good from E to D ____________

Question 6: (6 points) The demand for product X depends on the price of product X as well as the average household income (Y) according to the following relationship Qdx = 400 - 40 P + 0.001Y The supply of product X is positively related to own price of product X and negatively dependent upon W, the price of some input. This relationship is expressed as: Qsx = 110 + 10 P - 2 W Given that Y = 25,000 and W = 4, what is the: 1. Equilibrium price?  ____________ 2. Equilibrium quantity?  ____________ Suppose that income increases to 35,000 and W remains constant. What is the new: 3. Equilibrium price?  ____________ 4. Equilibrium quantity?  ____________ Assuming that income remains constant at 35,000 and W increases to 9, what is the new: 5: Equilibrium price?  ____________ 6. Equilibrium quantity?  ____________

Question 7: (4 points) Assuming a normal market, with a positively sloped supply and negatively sloped demand, which is initially in equilibrium. Given the situation stated below, fill in the blanks matching the effect as either: increase, decrease, no change or indeterminate (cannot determine).   Market for ORANGES A Ministry of Health study proves conclusively that moderately large quantities of orange juice help prevent the common cold, and severe frost occurs in south Florida.   As a result, (a) Fill in the blanks: Demand will ____________ (b) Fill in the blanks: Supply will ____________ (c) Fill in the blanks: Equilibrium price will ____________ (d) Fill in the blanks: Equilibrium quantity will ____________________________________

Question 8: (4 points) Assuming a normal market, with a positively sloped supply and negatively sloped demand, which is initially in equilibrium. Given the situation stated below, fill in the blanks using the pull down menu. Market for Honey Bee farmers discover a new method to raise more bees in a shorter period of time, and a recent research report shows that honey can help to prevent heart disease. (a) Fill in the blanks: Demand will ____________ (b) Fill in the blanks: Supply will ____________ (c) Fill in the blanks: Equilibrium price will ____________________________________ (d) Fill in the blanks: Equilibrium quantity will ____________

Answer 1

Question 5

(1)

As economy moves from point A to point B, the quantity of consumer goods increases from 0 to 160 and the quantity of capital goods decreases from 653 to 640.

So,

The opportunity cost of producing 160 consumer goods is 13 capital goods.

The opportunity cost of producing 1 consumer good is (13/160) 0.08 capital good.

Thus,

The opportunity cost of one consumer good from A to B is 0.08 capital goods.

(2)

As economy moves from point B to point C, the quantity of consumer goods increases from 160 to 320 and the quantity of capital goods decreases from 640 to 599.

So,

The opportunity cost of producing 160 consumer goods is 41 capital goods.

The opportunity cost of producing 1 consumer good is (41/160) 0.26 capital good.

Thus,

The opportunity cost of one consumer good from B to C is 0.26 capital goods.

(3)

As economy moves from point C to point D, the quantity of consumer goods increases from 320 to 480 and the quantity of capital goods decreases from 599 to 523

So,

The opportunity cost of producing 160 consumer goods is 76 capital goods.

The opportunity cost of producing 1 consumer good is (76/160) 0.47 capital good.

Thus,

The opportunity cost of one consumer good from C to D is 0.47 capital goods.

(4)

As economy moves from point F to point E, the quantity of consumer goods decreases from 800 to 640 and the quantity of capital goods increases from 0 to 392.

So,

The opportunity cost of producing 392 capita goods is 160 consumer goods.

The opportunity cost of producing 1 capital good is (160/392) 0.41 consumer

Thus,

The opportunity cost of one capital good from F to E is 0.08 consumer good.

(5)

As economy moves from point E to point D, the quantity of consumer goods decreases from 640 to 480 and the quantity of capital goods increases from 392 to 523.

So,

The opportunity cost of producing 131 capita goods is 160 consumer goods.

The opportunity cost of producing 1 capital good is (160/131) 1.22 consumer

Thus,

The opportunity cost of one capital good from E to D is 1.22 consumer good.