ASSIGNMENT 1 PJJ

PSP 3000 ASSIGNMENT 1 SEM 2 2014/2015 PRODUCTION POSSIBILITY CURVE 1. Explain how a production possibility curve illustr...

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PSP 3000 ASSIGNMENT 1 SEM 2 2014/2015 PRODUCTION POSSIBILITY CURVE 1. Explain how a production possibility curve illustrates the following economic concepts based on the graph (Video- X axis & Computer- Y axis): a. scarcity b. choice c. opportunity cost d. increasing, decreasing and constant opportunity cost 2. Show on the graph based on your own point, where is the productions and why? a. Attainable b. Unattainable 3. Scatch at the same graph based on the statement given: a. Increase in technology level for both productions. b. Increase in technology only for computer production. c. Economic depression will cause the production of Computer. 4. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish. Maximum annual output options A B C D E F

Quantity of potatoes (pounds) 1,000 800 600 400 200 0

Quantity of fish (pounds) 0 300 500 600 650 675

a. Draw a production possibility frontier with potatoes on the horizontal axis and fish on the vertical axis illustrating these options, showing points A–F. b. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain. Where would this point lie relative to the production possibility frontier? c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?

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d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds? e. Can you explain why the answers to parts c and d are not the same? What does this imply about the slope of the production possibility frontier? DEMAND, SUPPLY, MARKET EQUILIBRIUM 1. i) What are the differences between a demand curve and a supply curve? ii) What are the differences between: a) movement along the demand curve and b) shift in demand? c) movement along the supply curve and d) shift in supply? iii) What are the factors influence a), b), c) and d)? Explain. 2. Given the demand and the supply for cars at the market.

Price of Cars

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D1 Quantity of Cars For the following questions, refer to the graph shown above. a. Label the equilibrium point as E1, the equilibrium quantity as Q1, and the equilibrium price as P1. b. Show how the supply curve will change if car manufacturers achieve a technological breakthrough that allows them to produce cars more cheaply. c. If the price stayed at P1, would a surplus or a shortage result from the technological breakthrough described in part (b)? Answer in words, and show on the graph. d. Assuming market forces work quickly, show the new equilibrium price to which the market will adjust. Label this point as E2. Label the new equilibrium quantity as Q2, and the new equilibrium price as P2. e. In words, summarize the information that you have shown in your adjustments to the graph in parts (a) through (d).

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ELASTICITY 1. The accompanying table shows the price and yearly quantity sold of souvenir T-shirts in the Langkawi Island according to the average income of the tourists visiting. Price of T-shirt

$4 $5 $6 $7

Quantity of T-shirts demanded when the average tourist income is $20,000 3,000 2,400 1,600 800

Quantity of T-shirts demanded when the average tourist income is $30,000 5,000 4,200 3,000 1,800

a. calculate the price elasticity of demand when the price of a T-shirt rises from $5 to $6 and the average tourist income is $20,000. Also calculate it when the average tourist income is $30,000. b. calculate the income elasticity of demand when the price of a T-shirt is $4 and the average tourist income increases from $20,000 to $30,000. Also calculate it when the price is $7.

2. If the demand for a product is elastic, what will happen to the total revenue if price is rises? Explain based on the graph.

3. What are the sign for substitute goods, complementary goods and unrelated goods under the cross price elasticity of demand? Explain and give the example for each of the goods.

CONSUMER BEHAVIOUR THEORY 1.

The table below shows the quantity and total utility obtained from consumption of good X. Quantity

Total Utility

1 2 3 4 5

40 75 105 130 150

Marginal Utility

a. Fill in the blanks for marginal utility. b. If price per unit of X is RM25, calculate the quantity of X that will maximize the utility of this consumer.

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2. The table below shows the quantity and marginal utility obtained from consumption of 2 goods, that is X and Y are RM2 respectively. It is assumed that the consumer’s income of RM22 only spent for these two goods. Quantity

Marginal Utility X

Marginal Utility Y

1 2 3 4 5 6 7 8 9

30 29 28 26 24 22 20 18 16

20 19 18 16 14 12 10 8 5

a. Calculate MUx/Px and MUy/Py at every quantity level. b. Calculate the quantity of X and Y at consumer equilibrium that will maximize the utility of this consumer. c. How much the total utility for both goods that maximize the utility.

3. What is the difference between cardinal utility and ordinal utility? Explain.

Answer all the questions given and submit to me after midterm exams.

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