Principles of Economics

 

APA format.

Directions: Please answer any of the four questions from the following. Note that each response should have 400-450 words.

1. A German worker takes 400 hours to produce a car and 2 hours to produce a case of wine. A French worker takes 600 hours to produce a car and X hours to produce a case of wine.

a. For what values of X will gains from trade be possible? Explain.

b. For what values of X will Germany export cars and import wine? Explain.

2. Consider the relationship between monopoly pricing and price elasticity of demand.

a. Explain why a monopolist will never produce a quantity at which the demand curve is inelastic. (Hint: If demand is inelastic and the firm raises its price, what happens to total revenue and total costs?)

b. Draw a diagram for a monopolist, precisely labeling the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue curve.)

c. On your diagram, show the quantity and price that maximize total revenue.

3. A basic finding of labor economics is that workers who have more experience in the labor force are paid more than workers who have less experience (holding constant the amount of formal education). Why might this be so? Some studies have also found that experience at the same job (called job tenure) has an extra positive influence on wages. Explain why this might occur.

4. A market is described by the following supply and demand curves:

QS = 2P

QD = 300 – P

  1. a. Solve for the equilibrium price and quantity.
  1. b. If the government imposes a price ceiling of $90, does a shortage or surplus (or neither) develop? What is the price, quantity supplied, quantity demanded, and size of the shortage or surplus?
  1. c. If the government imposes a price floor of $90, does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded, and size of the shortage or surplus?
  1. d. Instead of a price control, the government levies a tax on producers of $30. As a result, the new supply curve is:

QS = 2(P – 30).

e. Does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded, and size of the shortage or surplus?

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