MICROECONOMICS

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Microeconomics

Microeconomics

Steel

Computers

U.S.

300

450

China

520

130

Q#1. A).The United States can produce 300 units of steel and 450 units ofcomputer. Therefore, to produce one unit of steel means that the U.S.will have to sacrifice 1.5 units of computers. On the other hand,China makes 520 units of steel and 130 units of computer. Therefore,if China wished to produce a single unit of steel, it would have tosacrifice ¼ units of computer. Consequently, China surrenders lessfor steel and should, therefore, specialize in steel production. TheU.S. can produce 450 units of computer or 300 units of steel.Therefore, for a single unit of computer, it sacrifices 2/3 units ofsteel. On the other hand, China has to sacrifice 130 computer unitsto produce 520 units of steel. Therefore, for a single unit ofcomputers, China sacrifices four units of computers. The U.S.sacrifices less in building computers than China. Therefore, the U.S.should specialize in computer production.

B). Specialization allows for cheaper production of goods since acountry gets to enjoy a comparative advantage (Baumol &amp Blinder,2015). Similarly, other nations find this advantageous because theycan finally import cheaper goods that would have otherwise beenexpensive to produce at home.

Q#2.

product

Production possibilities

Combinations

A

B

C

D

E

F

Fish

0

1

2

3

4

5

bread

100

90

75

55

30

0

Thetotal opportunity cost of producing fish is the sum of the marginalcosts. In this case, the determination will reach combination C. Themarginal cost at point A is 1. Point B=2, and point C=3. Therefore,the sum is 1+2+3=6. The total opportunity cost for three fish is 6.

Themarginal opportunity cost for increasing bread from 55 units to 75units is calculated as

(75-55)=20

20is the difference of moving from point D to C. The followingdifference is between fish production at point C and point D.

(2-3)=-(1)

Themarginal cost is the ratio between the difference of fish anddifference in bread at the same points. Therefore, the marginal costis 1/20.

Q#3. Changein demand is a complete shift of the demand curve as a result ofchanges in demand determinants while the change in quantity demandedexplains the movement along the same demand curve because of pricechanges (Baumol &amp Blinder, 2015).

PointsA → B and C → D reveal changes in demand while points A → C andB → D show changes in quantity demanded.

Q#4.

Rent per month ($)

Quantity demanded (thousands)

Quantity supplied (thousands)

600

150

100

800

140

120

1000

130

130

1200

120

140

1400

100

150

A)

PointA and B in the graph represent the equilibrium quantity and pricerespectively A= 130, B=1000.

B) Anincrease in rent to $1,200 per month reduces the number demanded to120,000 units. On the other hand, such a change increases thequantity supplied to 140,000 housing units. Since this price is abovethe equilibrium, sellers will eventually reduce output as customersdemand less a demand of 150,000 housing units and a supply of100,000 units.

C) If the NYC fixes the housing prices to $600, there will be ashortage of houses because quantity demanded would be greater thanquantity supplied.

Reference

Baumol,W. J., &amp Blinder, A. S. (2015).&nbspMicroeconomics:Principles and policy.Cengage Learning.