Supply and Demand and New Housing

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ECO1104D Introduction to Microeconomics
Fall 2012
Assignment 1 due on October 4 in class
(Total 80 points)
Q1. (15 points) The following table shows production possibilities for two items—chairs and tables. Combination| Chairs| Tables|
A| 0| 6|
B| 8| 5|
C| 15| 4|
D| 21| 3|
E| 26| 2|
F| 30| 1|
G| 33| 0|
(a) What is the opportunity cost of producing the first table? (33-30)/1=3 (b) What is the opportunity cost of producing the third table? (26-21)/1=5 (c) What is the opportunity cost of producing the sixth table? (8-0)/1=8 (d) Draw the production-possibilities curve for chairs and tables on a graph, placing tables on the vertical axis and chairs on the horizontal axis.

(e) If the economy achieved greater efficiency in the production of tables, how would the production –possibilities curve change? (f) If a more efficient method of producing chairs were developed, how would the curve change?

(g) Suppose more economic resources (labour, materials, and capital) became available. How would the curve change?

Q2. (15 points) The following table describes the production possibilities of two cities.

| Red SweatersPer Worker per Hour| Blue SweatersPer Worker per Hour| Montreal| 3| 3|
Toronto| 2| 1|

(a) Without trade, what is the price of blue sweaters (in terms of red sweaters) in Montreal? What is the price in Toronto? (b) Which city has an absolute advantage in the production of each colour of sweater? Which city has a comparative advantage in the production of each colour of sweater? (c) If the cities trade with each other, which colour of sweater will each export? (d) What is the range of prices at which trade can occur?

Q3. (10 points) Canada has a mixed economic system, in which both marketplace and government play a role. For each of the following situation, explain why you think that it would be best dealt with by the market, or by...
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