Question

1. Aaron’s Robot Factory, Tire Repair, and Dictionary Emporium, Inc. can produce 47 robot butlers, 282 dictionaries, or some combination of the two. Draw a production possibilities frontier with robot butlers on the y-axis and dictionaries on the x-axis, and title and label the diagram appropriately. Assume constant marginal opportunity costs. a. Clearly show at least one point that is attainable, unattainable, efficient, and inefficient. b. Describe tradeoffs for Aaron’s firm. Specifically, what is the opportunity cost of producing 1 more robot butler, and what is the opportunity cost of producing 1 more dictionary (hint: using a small table could help)? 2. Consider the following argument and answer the subsequent four point question. A politician says the following, “The United States can produce either 2,000 Marco Polo sheep, 20,000 magnetic resonance imagining (MRI) machines, or some combination of the two. Tajikistan can produce either 10,000 Marco Polo sheep, 1,000 magnetic resonance imaging (MRI) machines, or some combination of the two. Clearly the United States should produce both goods and not trade with Tajikistan.” c-f. (c.) Write a brief argument opposed to the politician’s statement. It would be advisable to include the concept that the politician is wrongly using to justify her argument and the concept she should use (*cough* types of advantage), and you should discuss the possibilities of gains from trade. Then, (d.) calculate opportunity costs. Next, (e.) suggest possibilities for specialization, and suggest a possible trade between the two countries that would make them both better off. (f.) Draw PPFs for each country, and depict and label gains from trade in each graph. Assume constant marginal opportunity costs. 3. You and your roommate, Lil Jon, have run into a bit of a disagreement. He is planning to throw a massive party the night before your microeconomics final exam. You have the following exchange:

You: Can you have a party any other time? Tomorrow’s exam is very important. Lil Jon: WHAT? You: Can you have a party any other time? Tomorrow’s exam is very important. Lil Jon: Well, the invitations are already out, and everyone has already RSVP’d. You: Is there any possible way at all this party can be moved? Lil Jon: Well, how much would you pay to have the party moved to a different location? You: $800. Lil Jon: Well I only spent $600. You should give me $700 to rent a room at a hotel for the party. You: I don’t think I should pay for you to have a party! Lil Jon: OKAY! YEAHHH! But seriously, it will require you to pay me $700 to move the party. g. Define positive economics. Write a statement about this situation that is positive. h. Define normative economics. Write a statement about this situation that is normative. i. Why is Lil Jon’s argument for you to pay him logical? Use concepts like gains from trade, tradeoffs, and opportunity costs, but be sure you are specific about gains from trade for each party. j. Free 5 points. I mean, why would you be living with Lil Jon?

. Define the law of supply. What does ceteris paribus mean in terms of movements along the supply curve and shifts in the supply curve? 2. Draw and appropriately label the following scenario that only incorporates demand for Florida oranges (e.g. there should be no supply curve in your answer); the price of Florida oranges increases (e.g. label a point A where you begin, then, following the increase in price, label a point B (hint: be sure to label your variables on your axes!)). Define the difference between demand and quantity demanded. 3. Draw and appropriately label the following scenario in a market with supply and demand. The market for the Samsung Galaxy S10 is initially in equilibrium. Then, there is an increase in the expected price for firms for the following quarter. What did you shift now and why? What happened to equilibrium price and equilibrium quantity?4. Draw and appropriately label the following scenario in a market with supply and demand. The market for Little Bear DVDs is initially in equilibrium. Then, there is an increase in the number of children (and children at heart) in society. What did you shift now and why? What happened to equilibrium price and equilibrium quantity? 5. Draw and appropriately label the following scenarios in a market with supply and demand. The market for 3D printers is initially in equilibrium. Then, there is a government subsidy and a positive change in technology. What did you shift now and why? Draw this scenario in two possible ways, commenting on what you can conclude about equilibrium price and equilibrium quantity depending on the magnitude of the shifts of supply and demand.

Define consumer surplus. Then, calculate your consumer surplus if you would pay $400 to go to a Buccaneers game, but your ticket only cost $160. 2. Use a model that only considers producer surplus. Leave out consumer surplus and demand for the moment. Demonstrate what happens to producer surplus when there is a price decrease. Use a graph and be sure to label and describe what happens to producers who remain in the market and producers who leave the market. Demonstrate what happens to quantity as well. 3. Now use a model that includes consumer and producer surplus. The model is initially in equilibrium. Now demand shifts down. What happens to total surplus, consumer surplus, and producer surplus? Use a graph and describe your results. Be sure to indicate what each surplus was before AND after the shift in demand. 4. Describe a situation in which a difference between efficiency and equity has caused society to disallow a potentially mutually beneficial transaction (do not use the example from the textbook or my example from class). Explain why society or policy makers have decided that efficiency might be less desirable than equity in this circumstance. Do you agree that equity should be considered more than efficiency in this situation? Why or why not? 5. Another free five points. Who is the best professor on earth?

Answer 1

1) The graph given below shows the production possibility Frontier of Robot factory where the robot butler ae shown on y axis and dictionaries on x axis.

The factory can produce either 47 robot butler or 282 dictionaries.

Hence the opportunity cost to produce one robot butler would be 282/47= 6 dictionary. In order to produce one more robot butler,the factory has to give up 6 dictionaries.

Similarly in order to produce one dictionary, 47/282=1/6 robot butler needs to be given up. So the opportunity cost to produce one more dictionary is 1/6 robot butler.

Also on the graph there are 3 points given.

Point A is attainable but inefficient because there is not complete utilisation of resources ie there could be more wastage or higher unemployment at this level.

Point C is unattainable. Given the level of resources, the economy has, it cannot produce at point C.

Point B is the efficienct level which is also attainable because it lies on PPF.