# eco assignment 1 Essay

Submitted By jabraa
Words: 1131
Pages: 5

1.  Trade and Specialization (Chapter 3)

a) Country A’s production possibilities frontier:
i.
ii. The opportunity cost of food in terms of clothing when the production of food is increasing is that the opportunity cost of producing food decreases as production increases. When production is at a minimum of 4 the opportunity cost is giving up 1.75 units of clothing but when the production increases to 100% the opportunity cost is only 1.33 compared to 1.75.
Clothing
Food
Opportunity Cost
28
21
28/21= 1.33
25
18
25/18= 1.39
17
15
17/15= 1.13
12
11
12/11= 1.09
7
4
7/4= 1.75

iii. If Country A improves in the production of food, the production possibility curve will rise and increase at the food end of the curve and the opportunity cost of food in terms of clothing will decrease. iv. If Country A improves equally at producing both food and clothing, the production possibility curve will expand and increase equally at both ends of the curve, overall remaining the same as well as the opportunity costs of the two products.

b) Country B’s production possibilities frontier:

i.

ii. New production possibilities table:
Resources Devoted to Clothing
Output of Clothing
Resources Devoted to Food
Output of Food
100%
53
0%
0
80
46
20
11
60
34
40
23
40
25
60
31
20
15
80
37
0
0
100
43

iii. Country A has a comparative advantage in the production of clothing with a lower opportunity cost, when producing 1 unit of clothing Country A only has to give up 0.57 units of food and Country B has to give up 0.88 units of food. Country B has a comparative advantage in the production of food with a lower opportunity cost compared to Country A. When Country B produces 1 unit of food it only gives up 1.14 units of clothing and Country A gives up 1.75 units of clothing.

If IIf Country A was to only produce clothing the total production would be 28 units, using 100% of Country A’s resources devoted to clothing. If Country B was to specialize in food the total production would be 22 units of food, using 100% of Country B’s resources devoted to food. 2. Supply and demand problems (Chapter 4) b. the sign of the slope for the demand equation is positive because it shows when there is a decrease in price there is an increase in demand . The supply equation has a negative slope because when there is an increase in price there is also an increase in supply, but at either ends if the price is too low there will be high demand and not enough supply creating a shortage and when the price is too high there will be not enough demand and high supply creating a surplus.

c. The market will be at its equilibrium when the price is \$25, the quantity demanded and quantity supplied will both be equal at 30 units.

Price
Quantity demanded
Quantity supplied
0
80
-20
5
70
-10
10
60
0
15
50
10
20
40
20
25
30
30
30
20
40
35
10
50
40
0
60

f. The reservation price for demand in this case is \$39.99,it is the highest price a customer is willing to pay with a demand of 0.02. If the price is raised by \$0.01 to have a value of \$40 then the quantity demanded drops to zero.
e.
Quantity
Demand
Supply
0
40
10
2
39
11
4
38
12
6
37
13
8
36
14
10
35
15
12
34
16
14
33
17
16
32
18
18
31
19
20
30
20
22
29
21
24
28
22
26
27
23
28
26
24
30
25
25
32
24
26
34
23
27
36
22
28
38
21
29
40
20
30
42
19
31
44
18
32
46
17
33
48
16
34
50
15
35
52
14
36
54
13
37
56
12
38
58
11
39
60
10
40
62
9
41
64
8
42
66
7
43
68
6
44
70
5
45
72
4
46
74
3
47
76
2
48
78
1
49
80
0
50
82
-1
51
84
-2
52
86
-3
53
88
-4
54
90
-5
55
92
-6
56
94
-7
57
96
-8
58
98
-9
59
100
-10
60

f. The results calculated in part e) compared to part c) are consistent, when the price is \$25 there is a demand and a supply of 30 creating the equilibrium for this case.

g.
Quantity
Demand
Supply
New market demand
0
40
10
80
2
39
11
79.5
4
38
12
79
6
37
13
78.5
8
36
14
78
10
35
15
77.5
12
34
16
77
14
33
17
76.5
16
32
18
76
18
31
19
75.5
20
30
20
75
22
29
21
74.5
24
28
22
74
26
27
23
73.5
28
26
24
73
30
25
25
72.5
32
24
26