`ECON 210 – July 2015 Problem Set 1 Total Points 100 (25% of the grade) Delayed submission will be subject to reduction in points A) Short answer type questions (10 questions, 6 points each) 1) Mary has a total of 10 hours for playing tennis and watching movies. The output of playing tennis is the number of games she has played and the output for watching movies is the number of movies she has watched. The following table shows the different combinations of playing tennis and watching movies Number of hours spent playing tennis Number of hours spent watching movies Number of games played Number of movies watched Op cost of 2 hour of playing tennis Op cost of 2 hour of watching movies 0 10 0 29 0 6 2 8 12 27 1/6 8/3 4 6 20 24 3/8 7/6 6 4 27 18 6/7 5/8 8 2 32 10 8/5 3/10 10 0 35 0 10/3 0 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 PPF of the two activities No of games played No of movies watched 2) What does a price elasticity of demand of 1.2 mean? An improvement in the weather led to an increase of 60% in the size of the corn crop. The demand curve for corn did not change. The price of corn fell by 20%. From this what can we conclude about the elasticity of demand for corn?
A PED of 1.2 means that the demand will change by 1.2% if the price changes by 1%. It means that the percentage demand will drop or rise more than the percentage in price change. The increase in supply of corn did not change the demand. With more substitutes for consumers, the price drops. We can conclude from this that the demand of corn is elastic. 3) Describe how each of the following can affect the PPF of a production unit with diagrams (consider any two goods X and Y): a) a natural disaster like floods, typhoons etc. b)technological advancement c) oil slick from refineries d) use of Facebook for business e) popularity of WhatsApp messaging a) Natural disasters will cripple the production of goods X and Y. People will be unable to work and goods cannot be produced. Goods cannot be shipped or transported around. This will cause the supply of the goods X and Y to drop. X Y b) Technological advances would increase the productivity of goods X and Y. More sophisticated machinery can be used and customized. This would increase the output of factories because of advanced machines. This would increase supply of goods X and Y. c) Oil slick will not affect the supply of goods in the short term, however, in the long term, pollution will destroy the environment and it might cause a decrease in supply of raw materials which will affect the production of goods X and Y.
d) The use of Facebook in a business would allow production units to reduce their marketing and advertising costs. With the high number of Facebook users and a low cost of marketing, Facebook allows Production units to reach out to more consumers with less costs incurred. This would allow production units to channel their extra cash flow to increase productivity.
- Fall '08
- Supply And Demand