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ECON 1550

ASSIGNMENT 1

MOHAMAD NEKMAT BIN AZMI


1315945
AZRI BUKHARI BIN SAMSURI
1313509
MUHAMMAD SYAUQI BIN NGATINGAN 1310193

1.

A graph has a point that is either a maximum or a minimum. To the left of the point, the slope of
relationship is positive. To the right of the point, the slope is negative. Is the point a maximum point or a
minimum point? Be sure to draw a figure that supports your answer.
The graph have a maximum point.
1

Maximum Point

Negative slope to
the right of the
point

Positive slope to
the left of point
0
1

2.

If two points on a line are x = 2, y = 5 and x = 7, y= 10, what is the slope of this line?

A= (2, 5)

Slope, =

B= (7, 10)

The table below shows how the number of books Katie buys each year depends on her income. He table
below shows how the number of books Katie buys each year depends on her income.
Katie's income (dollars Katie's purchases
per year)
(books per year)
50,000
14
70,000
16
90,000
18
110,000
20
a) What kind of relationship exists between Katie's income and the number of books she purchases?

3.

Opportunity cost.
b) Plot the relationship between Katie's income and the number of books she purchases. Measure income
along the vertical axis and the number of books along the horizontal axis.

Katie's income (dollars per year)

Katie's income (dollars per year)


120,000
100,000
80,000
60,000
40,000
20,000
0
14

16

18

20

Katie's purchases (books per year)

c) What is the slope of the relationship between $50,000 and $70,000 of income?
Slope, =

, =

d) What is the slope of the relationship between $90,000 and $110,000 of income?

Slope, =

, =

e) Comment on the similarity or dissimilarity of your answers to parts (c) and (d).
Katie spend $10,000 to buy a book per year, regardless how much is her income.

4.

Calculate the slope of the curved line at point A shown in the below figure?

Slope, =

5.

= , =

Draw a production possibilities frontier between beans and peas. Label the unattainable points, the
attainable points with fully employed resources, and the attainable points with unemployed resources.

6.

The figure below represents the production possibilities frontier for a country.

a) The nation is currently producing at point B and wants to move to point C. What is the opportunity cost
of the move?
The opportunity cost of producing a million camera is a million automobiles.
b) The nation is currently producing at point B and wants to move to point A. What is the opportunity cost
of the move?
The opportunity cost of producing a million automobiles are three millions cameras.

7.

Suppose a factory can be designed to produce either trucks or cars. The figure below shows the marginal
cost and marginal benefit of producing trucks in terms of the forgone cars.

a) What is the marginal benefit of the 25th truck?


Three cars per truck.
b) What is the marginal cost of the 25th truck?
A car per truck.
c) Should the 25th truck be produced? Why or why not.
The 25th truck should be produced because the marginal benefit is still above the marginal cost.
d) What is the marginal benefit of the 75th truck?
A car per truck.
e) What is the marginal cost of the 75th truck?
Three cars per truck.
f) Should the 75th truck be produced? Why or why not?
The 75th truck should not be produced because the marginal benefit is below the marginal cost.

g) What is the allocative efficient quantity of trucks?


50 trucks.
8.

Consumers can use either natural gas or heating oil to warm their houses. Suppose the price of natural gas
increases. Use a demand and supply diagram to show the impact of the higher price of natural gas on the
market for home heating oil.

9.

Suppose the market for CD-Rs has the demand and supply schedules shown in the table below. What is
the equilibrium price and the equilibrium quantity in this market?
Quantity
Quantity supplied
Price
demanded
(dollars per disk) (millions of disks (millions of disks
per month)
per month)
0.50
50
0
1.00
40
15
1.50
30
30
2.00
20
45
2.50
10
60
3.00
0
75
Suppose the current price is $2.00. What is the quantity of CD-Rs sold? Explain. Is there a shortage or a
surplus? How big is it? Explain.

The equilibrium price is $1.50 and equilibrium quantity is 30 million of disks. If the current price is
$2.00, the quantity of CD-Rs sold are 20 million of disks because the quantity demanded is 20 million
disks. When the current price is $2.00, the quantity supplied is exceeds the quantity demanded. There
is a surplus in supplying disks by 25 million.

10.

Using supply-and-demand diagrams, show and explain the effects of the following events on the price of
CD-Rs and the quantity of CD-Rs sold. For each event, identify which of the determinants of demand or
supply is affected, how it influences demand or supply, and what happens to the equilibrium price and
quantity.

a) The price of a CD burner falls.

The price of CD-Rs rises and the quantity of CD-Rs sold also rises. The demand curve is affected
because the price of the retails good is fall because of the price of complement of CD-R fall. Buyers
will buy the CD-Rs so that the demand is increase and shift to the right. The equilibrium price rises
and the equilibrium quantity also rises.
b) Workers who make CD-Rs get a pay raise.

The price of CD-Rs rises and the quantity of CD-Rs sold decreases. The supply curve is affected
because the price of a factor of production used to produce CD-R rises. So a rise in the price of a
factor of production decreases supply and shifts the supply curve leftward. The equilibrium price
rises and the equilibrium quantity decrease.

c) Producers introduce new cost-saving technologies in their CD-R production plants.

The price of CD-R decrease and the quantity of CD-R sold rises. The supply curve is affected because
advanced in technologies increase supply and the supply curve shift to the right. The equilibrium
price decrease and the equilibrium quantity increases.
d) Consumers' incomes increase and CD-Rs are a normal good.

The price of CD-R rises and the quantity of CD-R sold rises. The demand curve is affected because
when consumers income increase, they will pay more. This will make the demand increase, and the
demand curve will shift to the right. The equilibrium price rise and the equilibrium quantity also rise.
e) Free peer-to-peer music exchange through the Internet becomes legal.

The price of CD-R decrease and the quantity of CD-R sold decrease. The demand curve is affected
because there is a good substitute of the CD-R that is more profit to the buyer. The demand to the CDR will decrease and the demand curve shift to the left. The equilibrium price decrease and the
equilibrium quantity also decrease.

11.

If the price of a magazine increases from $5 to $7 and the quantity demanded of the magazines decreases
from 10 million per month to 8 million per month, using the midpoint method, what is the price elasticity
of demand? Show your work. Is the demand elastic, inelastic, or unit elastic?
Percentage change in quantity demand,

% = ,
% = ( )/ ,
Percentage change in price,

()
% = ,
% = ,
Price elasticity of demanded,
%
/
= %,
= / ,

% =

% =

= /

The demand is inelastic because the price elasticity of demand is less than 1.

12.

The price elasticity of demand for adults for cigarettes is 0.4. If government wants to reduce smoking
among adults by 15 percent, by what percentage should it raise the price of cigarettes? Teenagers have a
higher price elasticity of demand for cigarettes than do adults. Suppose the price elasticity of teenager's
demand for cigarettes is 0.8. If the government imposes a tax on cigarettes that raises the price to reduce
overall smoking by 15 percent, by what percentage will the government reduce teenage smoking?
%

= %
. =

%%
%+%

= . %

Government should raise the price to 187.5%.

= %

%%

. = %+%
= %

Government will reduce teenage smoking by 8%.

13. In the figure below, at which point (a, b, or c) along the linear demand curve illustrated would
demand be

a) Most elastic?
b) Most inelastic?

Point A, =

Point A is the most inelastic because less than 1.

Point B, =

Point C, =

Point D, =

Point D is the most elastic because greater than 1.

14. Suppose bad weather decreases the wheat harvest by 12 percent. If the price elasticity of demand for wheat
is 0.6, how would the crop failure affect the price of wheat? Would the crop failure benefit or harm wheat
farmers?

15. When the price of bananas rises 2 percent, the quantity demanded of peanut butter falls 4 percent.
a) What is the cross elasticity of demand between these two goods?
The cross elasticity of demand between these goods is -2
b) How are these goods related?
The two goods are complement that they have a negative cross elasticity of demand. The banana is
complement to the peanut butter.
c) If the price of bananas rises, how will that affect the demand curve for peanut butter?
When the price of banana rises, the demand curve for peanut butter will shift to the left because of
the cross elasticity of demand is negative.
16. Cory enjoys listening to all types of music. His demand schedules for CDs in 2009 and 2010 are
shown in the table below. Cory's income was $30,000 in 2009 and $35,000 in 2010. In 2010, he
bought an iPod so he started to download music files from the Intenet.
Quantity
Quantity
Price
demanded, 2009 demanded, 2010
(dollars per CD) (CDs per year) (CDs per year)
4
40
70
8
30
50
12
20
30
16
10
10
18
5
0
20
0
0
a) Draw Cory's demand curves for CDs in 2009 and 2010. How did Cory's demand for CDs change? Why?

The demand curves shift to the right because decrease in demand. After that increase the price of
CDs.

b) For each year, calculate Cory's price elasticity of demand as the price of CDs decreases from $16 to $12.
(Use the midpoint method in your calculations.)

c) Why might the price elasticity of Cory's demand for CDs in 2010 be different from that in 2009?
The price elasticity of Cory's demand for CDs in 2010 be different from that in 2009 because of
the demand price of related good is better.
d) If all CD buyers have the same demand as does Cory, what price should the record companies charge in
2010 to maximize their total revenue from CD sales?
To maximize their total revenue from CDs sales, the price should be rise because the percentage
decrease in quantity demanded will be smaller than the percentage increase in price.

17. The table below shows the demand for and supply of rental housing in Crainsboro. The city government is
considering imposing a rent ceiling of $700 a month. Help the government to analyze the effects of the
proposed rent ceiling.
Rent
Quantity
Quantity supplied
(dollars per
demanded
month)
(units per month) (units per month)
500
1,200
0
600
1,000
100
700
800
200
800
600
300
900
400
400
1,000
200
500
1,100
0
600
a) Draw the demand and supply curves. With no rent ceiling, what is the rent and how many apartments
are rented?

Demand and supply curves are shown above. With no rent ceiling, the equilibrium rent is $900
per month and 400 unit apartments are rented.

b) With the rent ceiling, what is the rent and how many apartments are rented? What is the shortage of
housing? Explain.
With the rent ceiling, the rent is $700 that is same with rent ceiling and the apartment are rented
is 200 units. The shortage of housing is 600 units. The rent ceiling is below the equilibrium rent
that make the demand curves exceed the supply curves.
c) If the rent ceiling is strictly enforced, what is the maximum price that someone is willing to pay for the
last unit of housing available? Is the housing market efficient? Explain.
The maximum price that someone is willing to pay for last unit of housing is $1000. The housing
market not efficient.
d) If a black market develops, how high could the black market rent be?
The black market rent is about $1000.
18. The table above shows the demand for and supply of labor in a small less developed country.
Quantity
Quantity
Wage rate
demanded
supplied
(dollars per hour)
(hours per
(hours per
month)
month)
3
800
400
4
700
500
5
600
600
6
500
700
7
400
800
a) Draw the demand and supply curves. What are the equilibrium wage and the level of employment?

Demand and supply curves are shown above. The equilibrium wage rate is $5 and the equilibrium
level of employment is 600 hours a month.

b) Currently, the minimum wage is set at $4.50 per hour. How many hours are worked? How many hours
of labor are unemployed?
The minimum wage is set at $4.50 per hour is below the equilibrium wage rate, so the actual wage
is the equilibrium wage, at which 600 hours of labor are worked and no labor are unemployed.
c) If the minimum wage is raised to $6 per hour, what are employment and unemployment?
When the minimum wage is raised to $6 per hour, then the actual wage is the minimum wage,
where 500 hours of labor per month are employed. At this wage rate, the quantity of labor supply
greater than the quantity of demanded, so the unemployment is 200

19. Use the following table to work Problems a to e. The table sets out Sues Surfboards total product
schedule.
Labor
(workers
per week)
1
2
3
4
5
6
7

Output
(surfboards
per week)
30
70
120
160
190
210
220

a) Draw the total product curve.

Total Product Curve


250

Output

200

150

100

50

0
1

Labor

b) Calculate the average product of labor and draw the average product curve.
Labor
1
2
3
4
5
6
7

Output
30
70
120
160
190
210
220

Average Product
30
35
40
40
38
35
31.4

Average Product
45
40

Average Product

35
30
25
20
15
10
5
0
0

Labor

c) Calculate the marginal product of labor and draw the marginal product curve.

Labor
1
2
3
4
5
6
7

Output
30
70
120
160
190
210
220

Marginal Product
30
40
50
40
38
20
10

Marginal Product
60

Marginal Product

50
40
30
20
10
0
0

Labor

d) 1. Over what output range does Sues Surfboards enjoy the benefits of increased specialization and
division of labor?
1-3 labor.
2. Over what output range does the firm experience diminishing marginal product of labor?
5-7 labor.
3. Over what output range does the firm experience an increasing average product of labor but a diminishing
marginal product of labor?
3-4 labor.
e) Explain how it is possible for a firm to experience simultaneously an increasing average product but a
diminishing marginal product.
Because worker has less access to capital and less space in which to work

20. Sues Surfboards, in Problem 19, hires workers at $500 a week and its total fixed cost is $1,000 a week.
a) Calculate total cost, total variable cost, and total fixed cost of each output in the table. Plot these points and
sketch the short-run total cost curves passing through them.

Output
30
70
120
160
190
210
220

Fixed Costs
1000
1000
1000
1000
1000
1000
1000

Variable Costs
500
1000
1500
2000
2500
3000
3500

Total Cost
1500
2000
2500
3000
3500
4000
4500

Total Cost Curve


5000
4500
4000
3500

Cost

3000

2500
2000
1500
1000
500
0
30

70

120

160

190

210

220

Output
Fixed Costs

Variable Costs

Total Cost

b. Calculate average total cost, average fixed cost, average variable cost, and marginal cost of each output in the
table. Plot these points and sketch the short-run average and marginal cost curves passing through them.

Output

Average Fixed Costs

30
70
120
160
190
210
220

33.33
14.29
8.33
6.25
5.26
4.76
4.54

Average Variable
Costs
16.67
14.29
12.50
12.50
13.16
14.29
15.90

Marginal Cost
50
12.5
10
12.5
16.67
25
50

Chart Title
60
50
40
30
20

10
0
0

50

100

Average Fixed Costs

150

Average Variable Costs

200

250

Marginal Cost

c. Illustrate the connection between Sues AP, MP, AVC, and MC curves in graphs
like those in the book Fig.11.6.

Labor

Output

Average
Product

Marginal
Product

1
2
3
4
5
6
7

30
70
120
160
190
210
220

30
35
40
40
38
35
31.4

30
40
50
40
38
20
10

Average
Variable
Costs
16.67
14.29
12.50
12.50
13.16
14.29
15.90

Marginal
Cost
50
12.5
10
12.5
16.67
25
50

Average Variable Cost and Marginal Cost


60
50
40
30
20
10
0
0

50

100

150

Average Variable Costs

200

250

Marginal Cost

Average Product and Marginal Product


60
50
40

30
20
10
0
1

3
Average Product

5
Marginal Product

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