Introduction to Microeconomics

ECO 101: Introduction to Microeconomics

Section 11

Summer 2010

University X

Assignment 2

Full marks: 10

Time of Submission: Just A week After Assigning, at the end of the class time.

Person to be submitted to :ME

Answer all the questions. The parenthesis carries the credit for each question.

  1. a) Suppose a landslide caused substantial damage to the orange orchards. At the same time the Chinese small oranges started to become very popular. Under these circumstances, what change could occur in the market for domestic oranges as far as price and quantity is concerned?                                                       (1.5)

b) Bata shoes became more productive in producing Hush Puppy type sandals with the help of imported technology. Since, the quality needs to be atlease comparable with the original one, prices are expected to rise. Under these circumstance what change can occur in that sandal market in price and quantity available?                                                                                              (1.5)

  1. The following table shows the production and consumption possibilities of two individuals Mr. Brad Pitt and Ms. Jennifer Anniston for loaves of Breads and bottles of Honey. From the situation also answer the following questions.
Brad Pitt
Loaves of Breads Bottles of Honey
40 0
20 10
0 40
Jennifer Anniston
Loaves of Breads Bottles of Honey
30 0
5 25
0 45

a)      Without specialization, Mr. Pitt decides to consume and produce 20 loaves of breads and 10 bottles of honey. That specific choice for Ms. Anniston was 5 loaves of breads and 25 bottles of honey. Under this circumstance, what is the opportunity cost for each of the item (bread in terms of honey)?                  (1.5)

b)      Who has a comparative advantage in what?                                                       (0.5)

c)      Even though they are sworn enemies (but they are the only two people living side by side), they specialize and decide to exchange 10 loaves of breads for 15 bottles of honey. How does that benefits both of them ( use a chart showing pre trade, post trade production and consumption and  units gained by the exchange).    (2.0)

d)      How does trade benefit them profit and cost wise?                                            (1.0)

3. If the Government imposes price floor, what could be the change in consumer, producer and total surplus? Who gains and who loses? (Use a diagram and denote several pieces with numbers. just the way we did in the class)                             (2)