ASSIGNMENT 1
A. Tabassum Assignment # 1 ECON 1000.0LC
A. Tabassum A-1 ECON 1000.RLA
ASSIGNMENT # 1
Microeconomics - ECON 1000.RLA– Winter 2021
Faculty of Business- Humber ITAL
INSTRUCTIONS (Please read)
· Complete all the parts to all questions and follow the organization suggested by each question. You may draw the graphs with a pencil but you must draw them within the answers (take picture and insert as image to the related question.) (DO NOT attach separate documents for graphs.
· All the text including mathematical part must be typed (Hand written assignments will receive a grade of zero).
· The assignment must be submitted using the group’s page and must be submitted as one as a MS Word or PDF document ONLY. (any other format of the assignment won’t open in the Bb and won’t be graded)
· Note the submission time on the link and submit before the link is expired. No other mode of submission will be graded. The submission link disappears once the due date/time expires.
· If a question is found to be copied from an internet source, it will receive a zero grade. If it is copied from another group, both groups will receive a grade of zero.
· Assignment must be completed in groups (absolutely no individual assignments).
· If a group member does not participate in the group work, report the name in the comments section on the assignment submission link to ensure that non-participators do not get the credit.
· Write to the point answers to the question and explain only where needed. Do not draw multiple graphs when you can show the work on a single graph. (Check for my instructions within the questions.
· Assignment will be graded out of 100 marks and it is worth 10% of your overall grade.
QUESTION 1 – (20 mark @ 4 marks each part) – Chapter 3
Suppose there are two countries: Canada and Japan, each producing 2 goods: cars and wheat. The only input they have is labor. Suppose both countries have 10 million workers. A Canadian worker can produce 10 tonnes of wheat per year or 4 cars. A Japanese worker can produce either 5 tonnes of wheat or 4 cars.
a. Use the above information to draw the PPF of each country separately.
If each country chooses to remain self-sufficient and devotes half its labor towards each good, how much of each good will be produced. Show this point on the PPF graph.
. Construct a table to show the opportunity cost of each country for each of the goods they produce.
c. Which country has absolute advantage in Wheat? Cars? Explain why?
d. Which country has comparative advantage in Wheat? Cars? Explain Why?
e. Starting from the situation of no trade in part a) and using the opportunity cost table in part b), what price of wheat and cars will make trade beneficial for both countries? Explain as much as possible and you can give a range of prices if it is not possible to give the exact price.
QUESTION 2– (20 marks) – Chapter 4
Because bagels and cream cheese are often eaten together, they are complements.
a. We observe that both the equili
ium price of cream cheese and the equili
ium quantity of bagels have risen. What could be responsible for this pattern – a fall in the price of flour or a fall in the price of milk? Illustrate and explain your answer using the supply and demand diagrams. (You are required to draw 2 graphs, one for bagels market and the other for cheese market) You must use the graphs and explanation in the proper order (One market will show the direct effect of an increase or decrease in an input price and the second market will show the effect due to being complement to the first good)
. Suppose instead that the equili
ium price of cream cheese has risen but the equili
ium quantity of bagels has fallen. What could be responsible for this pattern – a rise in the price of flour or a rise in the price of milk? Illustrate and explain your answer using the supply and demand diagrams. (2 graphs, one for each market). Again use the appropriate order for markets or else marks will be deducted.
QUESTION XXXXXXXXXXmarks @ 5 each part) - Chapter 4
Market research has revealed the following information about the market for chocolate bars: The demand and supply curves can be represented by equations:
QD = 1600− 300P
QS = XXXXXXXXXX700P
a. Find the horizontal and vertical intercept for both the curves. Graph the supply and the demand curves, clearly showing the intercepts. Also find the slope of demand and supply curves. Show and explain all your work.
. Determine the equili
ium price and quantity of chocolate bars using the equations and show the equili
ium on your graph that you drew in part a, Do not draw a new graph).
c. Due to a major industry ad campaign, the demand schedule for chocolate bars shifted to the right and represented by the equation:
QD = 1800 − 300P
What happens to the equili
ium price and quantity of chocolate bars in this case? Show all your work to solve for new P and Q. Repeat drawing the initial equili
ium graph and show on it the new equili
ium with the new demand curve to show how the equili
ium changes with changes in demand.
d. Returning to original demand schedule, suppose that the price of cocoa beans (a major ingredient in the production of chocolate bars) increased because of a drought in sub-Saharan Africa (a major producer of cocoa), changing the supply schedule to
QS = 1100 +700P
What happens to the equili
ium price and quantity? Again, draw the original equili
ium and show on that the new equili
ium with the new supply curve and original demand curve. [In each case, clearly show the intercepts of all the curves.]
QUESTION 4 – (20 Marks) – Chapter 5
Pharmaceutical drugs have an inelastic demand and computers have an elastic demand. Suppose that technological advance happened in both markets.
a. [7 marks] Draw the demand and supply diagrams for each market separately and show using the three steps what happens to price and quantity due to shift in the supply curve.
. [7 marks] Which product experiences a greater change in price? Why? Which product experiences a greater change in quantity? Why? Explain using the concept of elasticity.
c. [6 marks] What happens to the total consumer spending on both products? Use the concept of total revenue with relation to elasticity and explain.
QUESTION 5 – (20 Marks @ 5 each part) – Chapter 6
The demand and supply functions for hockey sticks are given by
QD = 286 – 20P
QS = 88 + 40P
In order to raise revenue to finance minor hockey so that Canada can continue its gold medal streak at the Olympics, the federal government decides to impose a tax of $2 per hockey stick sold, to be paid by the buyers of hockey sticks. (Show all your work, calculations and diagrams)
a. Determine the equili
ium price and quantity of hockey sticks both before and after the tax. How is the burden of the tax shared between buyers and sellers?
. How many hockey sticks would be sold before the tax is imposed? After the tax?
c. Graph the supply and the demand curves for hockey sticks both before and after the tax, clearly showing the intercepts and equili
ium outcomes.
d. What would happen if the tax were paid by the sellers of hockey sticks instead of the buyers? Repeat the steps you did when the tax was paid by the buyer and find the quantity of hockey sticks sold as well as the burden of buyers and sellers.
1 of 3