Professor ChisholmEconomics 101F&GJanuary 30, 2013HOMEWORK #1DUE DATE: WEDNESDAY, FEBRUARY 6, 2013This homework assignment is required and will be graded.Only homework submitted at the start of class on the due date will be accepted.You must show all formulas that you use and how you use them.Work problems neatly and in a logical, organized manner.PROBLEM #1A student spends the summer working as an intern at a financial services company, gaining valuableexperience, and receives $2,000 in pay for the summer. The student could have worked for thefamily business and earned $2,500 for the summer, or at a popular restaurant and earned $4,000 forthe summer. Between these two alternative summer jobs, the student considered working for thefamily business as their next-best alternative to the internship. Based on the information given, whatis the opportunity cost of working at the internship? Briefly explain your answer.PROBLEM #2For each statement below, determine whether it is a positive or normative statement. Briefly explaineach answer.a. In 2012, the Chinese economy grew at a 7.8% rate.b. It is unreasonable that companies must pay an average of $15,000 per year to providehealth insurance for an employee and their family.c. The inflation rate for the U.S. last year was 2.1%.d. A growth rate of 2.2% in the U.S. economy is too slow.PROBLEM #3The table below provides information on the production possibilities of tanks and bridges for asociety.Combination Tanks BridgesA 300 0B 280 1C 240 2D 180 3E 100 4F 0 5 PROBLEM #3 (CONTINUED)a. Using the data given in the table, find the opportunity cost (in tanks foregone) ofproducing the first, second, third, fourth, and fifth bridges.b. Plot the production possibilities data, with tanks on the vertical axis and bridges on thehorizontal axis. Sketch the production possibilities frontier.c. Briefly explain how the shape of the curve in part b captures the law of increasingopportunity costs.d. The society develops a new production method that improves the efficiency of bothbridge building and tank production. On your graph in part b, show how this newtechnology will change the production possibilities frontier.PROBLEM #4Cameron and Drew are neighbors and are both skilled in carpentry. If Cameron spends a full day onpainting, he can paint 6 rooms. Alternatively, if he spends a full day on installing windows, he caninstall 3 windows. If Drew spends a full day on painting, she can paint 16 rooms. Alternatively,spending the whole day on installing windows will yield 4 installed windows. a. Identify who has the absolute advantage in painting rooms? Who has the absoluteadvantage in installing windows? Briefly explain how you derived your answer.b. Identify who has the comparative advantage in painting rooms? Who has thecomparative advantage in installing windows? Briefly explain how you derived youranswer.c. In which activity should each person specialize in order to gain from trading?d. Suppose that Drew and Cameron specialize, according to part c, and agree to a term oftrade of 1 installed window for 3 rooms. Based on part c, Drew will be buying windowsfrom Cameron. Briefly explain why this term of trade is better for her than installingwindows herself. (The same can be demonstrated for Cameron regarding his ownpurchases of painted rooms under these terms, however, you are not required todemonstrate this for this problem.)PROBLEM #5The information below represents the demand and supply schedules for a product:Demand Schedule Supply SchedulePrice Quantity Demanded Price Quantity Supplied200 0 200 2100160 300 160 1700120 600 120 1300 80 900 80 900 40 1200 40 500a. Using graph paper, plot the demand curve, with price on the vertical axis and quantity onthe horizontal axis. Find the slope of the line you have drawn. (If you do not haveaccess to graph paper, you can print graph paper from the following:http://www.printfreegraphpaper.com/ ; graph paper is required for this problem only.)b. On the same graph, plot the supply curve.c. If the price in this market were $160, explain why this would not be the marketequilibrium price.d. Find the equilibrium price and equilibrium quantity exchanged for this market. PROLBEM #6For parts a through d of this problem, determine whether supply or demand will change (only onewill change in each case). Indicate whether the price and quantity will rise or fall in the indicatedmarket as a result of each change presented. Illustrate each answer graphically. Briefly explain eachanswer. For part e, follow the separate instructions given.a. IKEA is a Swedish home furnishings retailer. An official Indian agency supports IKEAopening 25 stores in India. Demonstrate the impact of IKEA’s entry into the Indianhome furnishings market.b. Suppose that recent protests by South African vineyard farm workers succeed in securinghigher wages for workers. Determine the impact on the South African wine market.c. In 2006, Pennsylvania could legally open casinos, resulting in new casinos opening inthe Philadelphia area. Casinos in Atlantic City, New Jersey were legal prior to this time.Philadelphia is about a one-hour drive from Atlantic City. Determine the impact of theexpanded gambling opportunities for customers in Philadelphia on the market for casinosin Atlantic City.d. Recently, the prices of the Nook and the Kindle, both electronic readers, have fallen.Determine the impact on the market for e-books.e. For this part of the problem, consider two simultaneous changes affecting the market fororange juice. Suppose that an early freeze in the south this winter negatively impactedthe crop yield of oranges. Suppose further that consumers recently learned that drinkingmore orange juice will improve health, even more so than previous studies haveindicated. Indicate which of these changes will impact supply and which will impactdemand in this market. In which direction will supply and demand change? Withoutany further information, are we able to predict the direction of change in equilibriumquantity exchanged? Without any further information, are we able to predict thedirection of change in equilibrium price? Illustrate your answer graphically and brieflyexplain your answer

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