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PS1 - An earthquake destroys the entire orange crop in...

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1. Assume that: - China consists of 1 billion people, all of them workers - Labor is the only resource needed to produce dumplings and sweaters - A worker can produce 100 dumplings per day if he spends all his time making dumplings. He can make 5 sweaters per day if he spends all his time making sweaters. a) Draw the PPF for China. b) What is the opportunity cost of a sweater? c) In the 1960s, the Communist Party insisted that each worker stand at his/her workplace (not working) and sing praises of Chairman Mao for 2 hours each day (workers spend 10 hours per day at work). Show the impact of this policy on the Chinese economy as illustrated in (a). d) A worker in India can produce 80 dumplings or 3 sweaters per day. Does it pay for China and India to trade? If not, why not? If so, explain what each country should do and why. 2. Assume that oranges are grown in either California or Florida.
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Unformatted text preview: An earthquake destroys the entire orange crop in California. a) Show the impact of the earthquake on the market for oranges. b) Congress is trying to limit the impact of the earthquake on the price of oranges. Would it advocate a price floor or a price ceiling? Why? c) What is the impact of the policy you chose in (b) on the market for oranges? 3. Read the article “Corks at Dawn” (available on Blackboard). Use the information in the article and what you have learned about supply and demand to answer the following questions. a) Suppose the only changes that occurred between last year and this year were the financial crisis and subsequent economic turndown. Show the impact on the market for champagne. Why has the turndown affected the market in this way? b) Show the impact of the changes in (a) on the market for champagne grapes. Justify your answer....
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