01282009161011YyWhNtDg22 - Final 200 points Econ 1101:...

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1 Final 200 points Econ 1101: Principles of Microeconomics Michael Walrath May 14, 2008 120 minutes Name: _______________________________________________ TA’s Name: __________________________________________ Section Number: ______________________________________ (TA’s Name and Section Number are worth 4 points, NOT bonus) On the following pages, please show all of your work. If you need more space, use the back of the page. Clearly state where your work/answer are. Clearly highlight/circle solutions. Calculators are NOT allowed. You may leave answers as fractions. Fully label all graphs. Read each question carefully and be sure to answer all parts of every question. There should be 14 pages including the cover sheet.
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2 Question 1 (17 points): Consider two countries: United States and Brazil. Both countries produce only two goods: car parts and steel. For each of these goods the only inputs are LAND and LABOR. Each country has 40 units of LAND and 40 units of LABOR. United States produces these goods as follows: LABOR LAND LABOR LAND F Q car parts car × + × = = 10 2 ) , ( LABOR LAND LABOR LAND F Q steel steel × + × = = 8 3 ) , Brazil produces these goods as follows: LABOR LAND LABOR LAND F Q car parts car × + × = = 4 3 ) , ( LABOR LAND LABOR LAND F Q steel steel × + × = = 5 10 ) , (a) Suppose each country allocates 20 LAND units and 20 LABOR units to the production of car parts, and 20 LAND units and 20 LABOR units to the production of steel. How much of each good is each country producing: Car Parts Steel United States Brazil (b) Suppose each country allocates 30 LAND units and 30 LABOR units to the production of car parts, and 10 LAND units and 10 LABOR units to the production of steel. How much of each good is each country producing: Car Parts Steel United States Brazil (c) Given the production tables you have from parts (a) and (b) give the opportunity cost of producing each good for each country. Car Parts Steel United States Brazil (d) Given your answers in (c), who has comparative advantage in the production of each good?
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3 Question 2 (18 points): Suppose our agent’s income is $120. Only two goods exist for our agent, good X and good Y. Good X costs $6 per unit and Good Y costs $5 per unit. Assume this agent has indifference curves that look like those typically drawn in class. (a) Of the following bundles below, circle which bundle could possibly be an optimal consumption bundle (OCB) for this agent. (10 units X, 12 units Y) (5 units X, 15 units Y) (15 units X, 8 units Y) (b) Explain how you got your answer in part (a). Why could the bundle you selected be an OCB, why couldn’t the other bundles be an OCB? Now suppose the price of Good X decreases to $4 per unit. The price of Good Y is still $5 per unit. (c) Given this price change, and given the OCB you selected above, circle which of the following bundles could be Point B (where the change between the OCB and Point B represents the substitution effect): (8 units X, 15 units Y) (10 units X, 15 units Y) (12 units X, 10 units Y) (d) Explain how you got your answer in part (c).
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This note was uploaded on 02/03/2009 for the course BUS 1001 taught by Professor Walrth during the Spring '08 term at University of Maryland Eastern Shore.

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01282009161011YyWhNtDg22 - Final 200 points Econ 1101:...

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