In: Economics
Problem 1
Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:
Tables |
Chairs |
0 |
100 |
10 |
80 |
20 |
60 |
30 |
40 |
40 |
20 |
50 |
0 |
Problem 2
Suppose the market for corn is given by the following equations for supply and demand:
QS = 2p − 2
QD = 13 − p
where Q is the quantity in millions of bushels per year and p is the price.
b. The bill's opportunity cost of producing one additional table is 1/2 chair. It means when bill produce 1 more unit of table it need to sacrifice 1/2 unit of chair.
c) The bill's opportunity cost of producing one additional chair is 2 tables. It means when bill produce 1 more unit of chair it needs to sacrifice 2 unit of table.
d) when bill produce 20 table and 40 chairs the allocation of resources is not efficient because actual Production fall short of its capabilities. If there is wastage or inefficient utilisation of resources, then economy will operate at any point inside the PPF(Like E).
2. Given Qs = 2p - 2 and Qd = 13 - p
At equlibrium Qs = Qd
2p - 2 = 13 - p
3P = 15 so equilibrium price(p) = 15/3 = 5
Qd = 13 - p = 13 - 5 = 8
So equilibrium quantity = 8.
When government fixed price 7 as price floor, it act as binding price floor. So no seller can sell goods below $7. So there is surplus.
Surplus = supply - demand
Supply at $7 = 2(7) - 2 = 12.
Demand at $7 = 13 - 7 = 6.
So surplus = 12 - 6 = 6( show in above diagram)