Supply and Demand and Budget Line

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Kuis 5
1. The countries of A and B are small island countries. Both produce fruit and timber. Each island has a labor force of 30. The following table gives production per month for each worker in each country. Workers| Baskets of Fruit| Board Feet of Timber|

A| 10| 10|
B| 4| 8|

a. Which country has an absolute advantage in the production of fruit? Which country has an absolute advantage in the production of timber? b. Which country has a comparative advantage in the production of fruit? Which country has a comparative advantage in the production of timber? c. Sketch the PPF’s of both countries.

d. Assuming no trading between the two, if country A use 19 workers to produce fruits and 11 workers to produce timbers and if country B use 20 workers to produce fruits and 10 workers to produce timbers. How many fruits and timbers would be produce and consume in each country? Show your answer on the PPF’s in each country. e. Show that by specialization there are much more fruits and timbers would be produce in total. f. If the two countries specialize in the production of good that has low opportunity cost compared to the other and if country B sell 130 of its timbers for 100 fruits to country A. How many fruits and timbers would be produce and consume in each country? g. Show that by trading each country can consume more than its PPF.

2. Explain how each of the following situations would affect a nation’s production possibilities curve. a. A technological innovation allows the nations to more efficiently convert solar energy into electricity. b. A prolonged recession increases the number of unemployed workers in the nation. c. A category 5 hurricane destroy over 40% of the nation’s productive capacity. d. The quality of education in the nation’s college and universities improves greatly. e. The nation passes a law requiring all employers to give their employees 16 weeks of paid vacation each year. Prior to this law, employer were not legally required to give their employees any paid vacation time.

3. Explain each of the following statements describes change in demand or change in the quantity demanded, and specify whether each change represents an increase or a decrease. In addition draw a demand graph representing the appropriate changes. a. A seller experiences a 40% increase in sales of clothes during 10-day, half price sale. b. Anna gets a promotion and 20% increase in her salary and decides to reward her self by purchasing a new car. c. When the price of hamburger unexpectedly rises, many consumers choose to purchase sandwich instead. d. Due to the problem of taste, A seller has experienced a decline in sales of his hand – made cake. e. An accountant working for the city of Jakarta, decides to forego his annual vacation to Bali when word leaks out that the city may be in danger following the terrorism issue.

4. Explain each of the following statements describes change in supply or change in the quantity supplied, and specify whether each change represents an increase or a decrease. In addition draw a supply graph representing the appropriate changes. a. Political unrest overseas threatens to distrupt the supply of Indonesia’s batik clothes. b. As the price goes up, farmers have motivation to do anything they can to get their product to the market. 5. Consider the markets for CD, laptop, and windows

For each pairs, identify whether they are substitutes or complements. Laptop and CD
CD and Windows
Windows and laptop
a. Suppose a technological advance reduces the cost of manufacturing laptop. Draw a diagram to show what happen in the market for laptop.

b. Draw two more diagram to show how the change in the market for laptop affects the markets for CD and Windows. .

6. For each of the following statements, draw a diagram that illustrates the likely effect on the market for meat. Indicate in each case...
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