IR 213: Professor Graham

IR 213: Professor Graham

Homework 1

Due September 10, 2012 at the beginning of class.

Late Homeworks are not accepted.

Directions: Type your answers into this word document. Type your name in the upper right. Print it out and hand in a hard copy in class.

Xavier / Yadier

1. If these are the only two consumers in the market, then the market quantity demanded at a price of $12 is:

2. Holding all other things constant, a lower price to play a round of golf would

a. / decrease the quantity demanded of rounds of golf.
b. / decrease the price of golf clubs.
c. / increase the quantity of golf clubs sold.
d. / increase the demand for other summer recreational activities.

3. Suppose there is a decrease in the price of corn. If corn is an input into the production of ethanol, we would expect the supply curve for ethanol to

a. / shift rightward.
b. / shift leftward.
c. / become flatter.
d. / remain unchanged.

4. Today's supply curve for ipods could shift in response to a change in

a. / today's price of ipods.
b. / the expected future price of ipods.
c. / the number of buyers of ipods.
d. / All of the above are correct.

Explain your answer to number 4:

5. What is the equilibrium price and quantity in this market?

If the government established price controls that set the price at $12:

A. How many units would buyers demand?

B. How many units would producers produce?

C. Does this create a surplus or a shortage? How big of a surplus/shortage?

6. A movement upward and to the left along a demand curve is called a(n)

a. / increase in demand.
b. / decrease in demand.
c. / decrease in quantity demanded.
d. / increase in quantity demanded.

7. An increase in the price of a good will

a. / increase demand.
b. / decrease demand.
c. / increase quantity demanded.
d. / decrease quantity demanded.

8. The movement from point A to point B on the graph shows

a. / a decrease in demand.
b. / an increase in demand.
c. / a decrease in quantity demanded.
d. / an increase in quantity demanded.

9. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for tennis racquets?

a. / an increase in the price of tennis balls
b. / an expectation by firms that the price of tennis racquets will increase in the very near future
c. / a decrease in the price of tennis racquet strings
d. / a decrease in the number of firms selling tennis racquets

10a.. At a price of:

a. / $2, there is a surplus of 6 units.
b. / $5, there is a surplus of 25 units.
c. / $5, there is a shortage of $25.
d. / $7, there is a surplus of 4 units.

10. At what price would there be a shortage of 6 units?

11. All else equal, what happens to the equilibrium price of cars if the price of steel increases? What happens to the equilibrium quanitity?

12. . If a drought destroys the wheat crop, what happens to the demand for corn? What happens to the price of corn? What happens to the supply of bread? What happens to the price of bread? What happens to the demand for wheat?

Table 2.2. Output possibilities for South Korea and Japan

Output per worker per day
Country / Tons of steel / VCRs
South Korea / 80 / 40
Japan / 20 / 20

13. Referring to Table 2.2, the opportunity cost of one VCR in Japan is: (Hint: How many tons of steel?)

14. Refer to Table 2.2. According to the principle of absolute advantage, Japan should:

a. / Export steel
b. / Export VCRs
c. / Export steel and VCRs
d. / None of the above; there is no basis for gainful trade

15. Refer to Table 2.2. With international trade, what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each VCR?

16. Refer to Table 2.2. With international trade, what would be the maximum number of VCRs that Japan would be willing to export to South Korea in exchange for each ton of steel?

17. Concerning international trade restrictions, which of the following is false? Trade restrictions:

a. / Limit specialization and the division of labor
b. / Reduce the volume of trade and the gains from trade
c. / Cause nations to only export goods when they have absolute advantage
d. / May result in a country producing some of the product of its comparative disadvantage

Figure 2.1. Production Possibilities Schedule

18. a.Referring to Figure 2.1, the relative cost of steel in terms of aluminum is:

b. The relative cost of aluminum in terms of steel is:

19. Refer to Figure 2.1. If the relative cost of steel were to rise, then the production possibilities schedule would:

a. / Become steeper
b. / Become flatter
c. / Shift inward in a parallel manner
d. / Shift outward in a parallel manner

20. Explain in 2-4 sentences the difference between a change in demand (i.e. the demand curve) and a change in the quantity demanded.

21. What are three things that might increase the supply of wooden chairs in the US (i.e. shift the supply curve to the right)?

22. Explain in 3-6 sentences how a country can gain from trade even if its trading partner has an absolute advantage in all products.

23. Bonus:

Given a two-country and two-product world, the United States would enjoy all the attainable gains from free trade with Canada if it:

a. / Trades at the U.S. rate of transformation
b. / Trades at the Canadian rate of transformation
c. / Specializes completely in the production of both goods
d. / Specializes partially in the production of both goods

Explain your answer.