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ECO111 Test 01 Individual Assignment 01 Spring2024

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ECO111 Test 01 Individual Assignment 01 Spring2024

Uploaded by

Phương Nguyễn
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© © All Rights Reserved
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ECO111 Microeconomics

Class:
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Submission due:
Format: .pdf file
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Student Information
Name: NGUYỄN THỊ THU PHƯƠNG Roll number: HS180112
Room No: DE- C309 Class: IB1903

FOR TEACHER ONLY


MARK MARKED BY Signature of Proctor
(NAME AND SIGNATURE)

Individual Assignment 01
Question 1. (2 points)

1. What is your opportunity cost of each of the following?


a. Attending your next economics class meeting.
- Opportunity cost is the time I could working a part-time job, or relaxing.

b. Skipping your next economics class meeting.


- Opportunity cost is the knowledge and learning missed from that particular class.

c. Taking an all expenses paid trip to the Lasvegas for a week during this semester.
- Opportunity cost is the time that I could have been spent studying and potential impact
on academic performance.

2. The local pizza restaurant is advertising a special. If you buy one individual sized pizza,
you get the next one at 25% off, the third one for 50% off and the fourth one for 75%
off. Your marginal benefit from eating pizza is shown in the table below. If the price of
a pizza is $6, how many should you buy?

No of pizzas MB (Marginal Benefit) MC ( Marginal Cost )


0 0 0
1 7 6
2 4 4.5
3 2 3
4 1 1.5

You should continue to buy pizzas as long as the marginal benefit (MB) is greater
than or equal to the marginal cost (MC):
+ First pizza: MB > MC (7 > 6), so buy it.

+ Second pizza: MB = MC (4 = 4.5), so it’s a borderline case, but you might choose to
buy it.

+ Third pizza: MB < MC (2 < 3), so don’t buy it.

+ Fourth pizza: MB < MC (1 < 1.5), so don’t buy it.

So, you should buy either 1 or 2 pizzas, depending on whether you're willing to pay the
full price for the second pizza. Otherwise, just stick with one pizza.

3. The workers in a factory currently earn $120 for a 39 – hour week. The management
offers them a choice between either a straight 10% wage increase or an increase in the
weekly wage to $125 coupled with a reduction in hours from 39 to 37 hours. What is the
opportunity cost to each worker of opting for the 37 – hour week?

*OPTION 1 : 10 wage increase: A 10% wage increase would make the weekly wage
$120 + 10% x $120 = $132

The hourly wage in this case would be :

$ 132/ 39 = $3.38 per hour

*OPTION 2: $125 wage and 37- hour week : The weekly wage increases to $125, but
the hours decrease to 37. So the hourly wage in this case would be

$125 / 37 = 3.38 per hour

The 2 OPTION is the same in the hourly wage. So, there is opportunity cost in terms
of hourly wage. However, the workers would be working 2 hours less per week.

So the opportunity cost of option 1 is : 2 hours less per week


And the opportunity cost of option 2 is : $7

Question 2. (5 points)

1. a. What is defined as absolute advantage?


- Absolute advantage is a country's ability to produce a good using fewer units of
input than other countries.

b. What is defined as comparative advantage?


- Comparative advantage is the ability of one country to produce a good at a lower
opportunity cost than another country.

c. Case 1: Output approach


Two commodities and two countries
Given the resources, Singapore and Malaysia can produce the following products –
television sets and cars (see Table 01)
Countries TV sets Cars (units)
Singapore 100 50
Malaysia 60 40
Table 01
+ Which country has the absolute advantage in the production of both TV sets and
Cars over the other? Explain

>>Singapore has an absolute advantage in the production of both TV sets and cars
over Malaysia because it can produce more of both goods with the same resources.

+ Which country has the comparative advantage either in the production of TV sets
or in the production of Cars over the other? Calculate, Explain and Draw your
PPF to illustrate
For Singapore:

+ The opportunity cost of producing 1 TV set is the number of cars


given up. So, it’s 50 cars / 100 TV sets = 0.5 cars/TV set.
+ The opportunity cost of producing 1 car is the number of TV sets
given up. So, it’s 100 TV sets / 50 cars = 2 TV sets/car.
For Malaysia:

+ The opportunity cost of producing 1 TV set is 40 cars / 60 TV sets = 0.67


cars/TV set.
+The opportunity cost of producing 1 car is 60 TV sets / 40 cars = 1.5 TV
sets/car.

**Comparing these opportunity costs, we can see that:

+ Singapore has a lower opportunity cost (0.5 < 0.67) in producing TV sets,
>>so Singapore has a comparative advantage in producing TV sets.

+ Malaysia has a lower opportunity cost (1.5 < 2) in producing cars,


>> so Malaysia has a comparative advantage in producing cars

d. Case 2: Input approach


Two commodities and two countries
Give the resources, America and England can produce one unit for both Steel and
Coal in terms of number of working hours shown as follows:

Countries One unit of Steel One unit of Coal


required required
America 80 man-hours 90 man-hours
England 120 man-hours 100 man-hours
Table 02
+ Which country should specialize in the production of Steel? Calculate and Draw
your PPF to illustrate
+ Which country should specialize in the production of Coal? Calculate and Draw
your PPF to illustrate
e. Case 3: Input approach
Two countries but multiple commodities
The following Table 03 shows the numbers of man – days taken to produce an
equivalent amount of six commodities in each of the two countries – Switzerland
and Sweden.
Countries Coal Cotton Wool Iron Wheat Maize
Switzerland 120 60 70 100 140 80
Sweden 100 25 35 90 90 20
Table 03
+ Assuming that there are no other costs of production. Which two commodities is
Sweden most likely to import from Switzerland?

The opportunity cost of :

Coal: 100/120 = 0,83


Cotton: 25/60 = 0,41
Wool: 35/70 = 0,5
Iron: 90/100 = 0,9
Wheat: 90/140 = 0,64
Maize: 20/80 = 0,25

=> Two commodities is Swede most likely to import from Switzerland are: Coal and iron.

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