ECO 201
Problem Set 5
Answer each of the following questions. Answers must be submitted in a PDF or Word document to the assignment box in D2L by the due date. Graphs must be your own. Any graphs may be hand drawn or created by you. No credit will be given for graphs created by someone else. Provide any formulas used. Answers must be typed.
1. The accompanying table indicates the US domestic demand and supply schedules for commercial jet airplanes. Suppose that the world price of a commercial jet airplane is $100 million.
Price (millions)
Quantity of Jets Demanded
Quantity of Jets Supplied
$120
100
1000
110
150
900
100
200
800
90
250
700
80
300
600
70
350
500
60
400
400
50
450
300
40
500
200
a. Without trade, how many commercial jet airplanes does the US produce, and at what price are they bought and sold?
. With trade, what will be the price for commercial jet airplanes? Will the US import or export airplanes? How many?
2. The accompanying table shows the US domestic demand and supply schedules for oranges. Suppose the world price of oranges is $0.30 per orange. Quantities are in thousands.
Price
Quantity of oranges Demanded
Quantity of oranges Supplied
$1.00
2
11
0.90
4
10
0.80
6
9
0.70
8
8
0.60
10
7
0.50
12
6
0.40
14
5
0.30
16
4
0.20
18
3
a. Draw the US domestic supply and demand schedules
. With free trade, how will the US import or export? How many?
c. Suppose the US government imposes a tariff on oranges of $0.20 per orange. How many oranges will the US import or export after the tariff?
d. In your diagram, shade the gain or loss to the economy as a whole from the introduction of the tariff.
e. If the US had wished to use a quota instead of the tariff, what quota would have the same impact in the market?
3. Mitch and Angela are castaways on an island in the Pacific. Angela can gather 30 coconuts or catch 40 fish per day. Mitch can gather 20 coconuts or catch 10 fish per day. Assume that they can divide their days between the two activities and a linear relationship holds.
a. Complete the following table on opportunity costs.
Opportunity cost of 1 coconut
Opportunity Cost of 1 fish
Mitch
Angela
. Who has the comparative advantage in coconuts? Briefly explain.
c. Who has the comparative advantage in fish? Briefly explain.
d. Propose a mutually beneficial trade.
e. Using production possibilities curves, demonstrate that both Mitch and Angela will benefit from specialization and trade at the rate proposed in question d.
ECO 201
Problem Set 5
Answer each of the following questions. Answers must be submitted in a PDF or Word document to the
assignment box in D2L by the due date. Graphs must be your own. Any graphs may be hand drawn or
created by you. No credit
will be given for graphs created by someone else. Provide any formulas used.
Answers must be typed.
1.
The accompanying table indicates the US domestic demand and supply
schedules for
commercial jet airplanes. Suppose that the
world price
of a commercial j
et airplane is $100
million.
Price (millions)
Quantity of Jets Demanded
Quantity of Jets Supplied
$120
100
1000
110
150
900
100
200
800
90
250
700
80
300
600
70
350
500
60
400
400
50
450
300
40
500
200
a.
Without trade, how many
commercial jet airplanes does the US produce, and at what
price are they bought and sold?
.
With trade, what will be the price for commercial jet airplanes? Will the US import or
export airplanes? How many?
2.
The accompanying table shows the US domestic dema
nd and supply schedules for oranges.
Suppose the world price of oranges is $0.30 per orange. Quantities are in thousands.
Price
Quantity of oranges
Demanded
Quantity of oranges Supplied
$1.00
2
11
0.90
4
10
ECO 201
Problem Set 5
Answer each of the following questions. Answers must be submitted in a PDF or Word document to the
assignment box in D2L by the due date. Graphs must be your own. Any graphs may be hand drawn or
created by you. No credit will be given for graphs created by someone else. Provide any formulas used.
Answers must be typed.
1. The accompanying table indicates the US domestic demand and supply schedules for
commercial jet airplanes. Suppose that the world price of a commercial jet airplane is $100
million.
Price (millions) Quantity of Jets Demanded Quantity of Jets Supplied
$ XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
a. Without trade, how many commercial jet airplanes does the US produce, and at what
price are they bought and sold?
. With trade, what will be the price for commercial jet airplanes? Will the US import or
export airplanes? How many?
2. The accompanying table shows the US domestic demand and supply schedules for oranges.
Suppose the world price of oranges is $0.30 per orange. Quantities are in thousands.
Price Quantity of oranges
Demanded
Quantity of oranges Supplied
$ XXXXXXXXXX
XXXXXXXXXX