Question

1. What are the economic costs of attending college? List the relevant factors and defend your answer.

2. “The elasticity of demand for Coca Cola is smaller than for soda in general.” Is this sentence true or false? Defend your answer.

3. Over time, the contributions of computing and computer power to economic output have grown. How do you expect this will affect the market for college degrees in computer science? Defend your answer. A graph is required for full credit.

4. Suppose there is currently an excess demand for canned soup. What does this imply for the quantity of canned soup demanded, compared to the quantity of canned soup supplied? What does this imply for the price of canned soup? Is the current situation an equilibrium? Why or why not? Defend your answer. A graph is required for full credit.

5. Suppose an early frost destroys a significant part of the apple crop. What would happen to the price and quantity of applesauce on the market? Defend your answer. A graph is required for full credit.

Answer 1

1) There are explicit as well as implicit cost attached with an event where explicit cost is the money spent in cash while implicit cost is the opportunity cost of attending the event

Economic cost of attending college is fee you pay, stationary and travelling cost (explicit cost) while income foregone if you work inspite of going to college (implicit cost)

2) Elasticity of demand = %change in quantity demanded / %change in price

A good with many uses have less elasticity because consumers can use it for many purposes and willing to pay a little price too and do not reduce their demand. Coca - Cola can be used for many purposes than Soda which make its demand less elastic than Soda.

3) As contribution to output growth have increases with the help of computers, more students will pursue degree in computers to get a job at a high wage rate. It will raise supply of computer degree holders which will reduce wage recived them in real.

4) As there is excess demand of canned soup, market price of soup must be below the equilibrium price of soup which means that consumers must be willing to pay higher price than prevailing price which will induce producers to raise price till the market is in equilibrium.

5) As applesauce is made of apples, damage of crop of apple will raise its price due to shortage of it which eventually raise cost of production of apple sauce which will induce producers of apple sauce to produce less of it and shift supply curve to its left which will raise price of applesauce from P to P1 and reduce output level from Y to Y1.