A. Describe the pattern of absolute advantage and briefly explain how you arrived at your conclusion. B. State the opportunity costs to produce a single block of cheese in each nation. C. Describe the pattern of trade we would expect to see between these two nations, according to Ricardo’s principle of comparative advantage, and briefly explain how you arrived at your conclusion. D. Suppose the relative price of cheese on international markets increases from 3 bottles of wine per block to 3.5 bottles of wine per block. Describe what happens to each nation’s terms of trade (i.e. do they appreciate or depreciate) and explain why they benefit or are harmed.
Problem 2: Market Equilibrium Consider the monthly exchange in the markets for footballs, as described by the following demand and supply functions. Note that the prices are in dollars per football and the quantities are in thousands of footballs per month. Demand: P = 70 — Qo and Supply P = 10 + 3% A. Calculate the market clearing price. (Show all your work – no marks will be awarded without accompanying work) B. Determine the quantity of footballs exchanged each month when the market is in equilibrium. (Show all your work – no marks will be awarded without accompanying work) C. Draw the market. Label the demand and supply curves and the numerical values of the market clearing price and equilibrium quantity exchanged that you calculated in parts A and B. (Use a ruler)
Problem 3: Comparative Statics Consider the market for exchange of Atlantic cod and suppose that it is perfectly competitive. For each of the following scenarios identify the following: which curve shifts (Demand or Supply), which direction it goes in (Right or Left), what happens to price as the market re-establishes equilibrium (Rise or Fall), and what happens to quantity exchanged as the market begins to clear (Rise of Fall).
Point form or bulleted responses are appropriate for this problem. You do not need to justify your responses for full credit, though you may choose to do so. A. A new study shows that Atlantic cod is tainted with high volumes of mercury and could make people sick if they eat too much of it. B. The price of haddock (a similar fish to cod) falls. C. The price of tartar sauce (a condiment often used to season cod) falls. D. Analysts predict that anticipated changes to fisheries regulations will cause cod prices to rise in the future.
Problem 4: Elasticity Suppose that the price of a one-way ferry ticket between Victoria and Vancouver rises from $57.50 to $62.00. A. Calculate the percentage increase in the price of a ferry ticket. B. Given that the number of ferry tickets purchased falls by 4% due to the price increase. Calculate the price elasticity of demand for ferry trips. Use the formula for the price elasticity of demand at a single point, not across an arc (Show all your work – no marks will be awarded without accompanying work) C. Notice that the consumer demand is price inelastic. Do you think this is realistic? Why or why not.D. In the scenario described by parts A-C, what will happen to the revenues collected by BC Ferries? Explain. (suggested length 3 sentences — you may also wish to include a graph to support your answer). E. Why do you think it might be important to have price restrictions in place (e.g. government regulations) when consumer demand for an item is price inelastic?
Problem 5: Economic Systems Briefly discuss the strengths and weaknesses of market economies. Respond in hill sentences and take the time to proofread your work. Your response must be typed
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