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Homework 2 - models 3 What is an opportunity cost Discuss...

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Temple University Department of Economics Homework #2 Due: Wednesday, Sept. 22 Instructor: Ken Chesoli Economics 1101 Macroeconomic principles Please answer all questions clearly and concisely. 1. Define and discuss the importance of the production possibility frontier (PPF) in macroeconomics. How is it related to the concept of “economic growth”? ( Hint: explain everything you know about PPF including an explanation of what would make a PPF to shift outwards). 2. By means of graphs, please show and discuss how a recall of some Toyota models would affect the equilibrium prices and quantities for some comparable (substitute) General Motors cars in the US (hint: use arbitrary figures for illustration purposes and be thorough in your explanation. Also, be sure to draw two sets of graphs one for Toyota and another for GM model, and explain the movements in demand and or supply for both
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Unformatted text preview: models). 3. What is an opportunity cost? Discuss how opportunity cost is used by economists in making policy recommendations (3 paragraphs – hint: gains of trade) 4. What is the difference between change in demand and change in quantity demanded? Give factors that contribute to both demand and quantity demanded. 5. Consider the market for Pizza. Suppose that the market demand for pizza is given by the equation Q d = 300 - 20P d (or P d = 15 - Q d ) and market supply for pizza is given by Q s = 20P s – 100, (or P s = 5 + Q s ), where Q d is quantity demanded and Q s is quantity supplied, P s is the price producers receive and P d is the price consumers pay for a pizza. (i) In equilibrium, how many pizzas would be sold, and at what price? (ii) What would happen if suppliers set the price at $15? Explain your answer....
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