Econ 101 Winter 2010 Problem Set 2

# Econ 101 Winter 2010 Problem Set 2 - Economics 101...

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Problem Set 2 January 21 & 22 University of Michigan Winter 2010 Economics 101 Microeconomics

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Econ 101.400 Winter 2010 Question One Drawn above are hypothetical production possibilities frontiers (similar to those drawn in class) for wool-growers in Australia and New Zealand. We measure the quantity of fine wool (in millions of bales) and quantity of coarse wool (in millions of bales) on the horizontal and vertical axes, respectively. (a) Draw the joint production possibilities frontier, showing the maximum amount of coarse wool that can be produced in the two countries jointly, for any given level of fine wool production. (b) Suppose that the price of coarse wool is \$400/bale and the price of fine wool is \$100/bale. How much fine wool will New Zealand wool growers wish to produce? How much fine wool will Australian wool growers wish to produce? Be sure to explain why. (c) Suppose the price of fine wool rises to \$400/bale, while the price of coarse wool stays at \$400/bale. How much fine wool will be produced in each country? (d) Suppose the price of fine wool rises even further, to \$1000/bale, while the price of coarse wool stays at \$400/bale. How much fine wool will be produced in each country? (e) If the price of coarse wool is \$400/bale, what is the lowest price per bale of fine wool that will encourage at least some wool growers in either New Zealand or Australia to produce fine wool? Fine wool Fine wool Coarse wool Coarse wool Australia New Zealand 2 5 1.6 0.8
Econ 101.400 Winter 2010 (f) If the price of coarse wool is \$400/bale, what is the highest price per bale of fine wool at which any farmer in Australia and New Zealand will wish to produce

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## This note was uploaded on 04/20/2010 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Econ 101 Winter 2010 Problem Set 2 - Economics 101...

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