E342-Tutorial QuestionsSU10

E342-Tutorial QuestionsSU10 - (c) Suppose the land supply...

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Economics 342 Tutorial Questions NOTE: These are NOT to be handed in. ****I have revised question 2(d) below. *** These questions are based on the material from Chapter 4 of the 2 nd edition of the Krugman Obstfeld text – not the current edition. Question 1 is based on material we covered in last Monday’s class and we will cover the material relating to Question 2 during the upcoming class. 1. To produce a unit of steel requires 10 units of labour and 5 units of land. To produce a unit of wheat requires 2 units of labour and 4 units of land. The economy has a supply of 100 units of labour and 100 units of land. (a) Graph the labour and land constraints on the economy’s production. (Put steel on the horizontal axis) (b) Find the production possibility diagram
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Unformatted text preview: (c) Suppose the land supply were to increase to 110. Show how this would affect the country’s production possibility frontier. 2. Maintaining the assumptions from Question 1. Suppose the price of steel p s is 3 and the price of wheat p w is 1. (a) Graph the zero profit conditions (price = unit cost) for steel and wheat. Put the wage rate w on the horizontal axis. (b) Determine the equilibrium wage w and rental on land r. (c) Suppose the price of steel were to rise to 3.5. Graph the effect of this change and find the effects on the wage rate w and rental rate r. (d) Compare real wages (w/p s , w/p w ) and real returns (r/p s , r/p w ) to land before and after the change in the price of steel. (****) Which factor of production is made better off?...
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This note was uploaded on 06/18/2010 for the course ECON 305 taught by Professor Vasyl(basil)golovetskyy during the Summer '09 term at Simon Fraser.

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