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Assignment #1

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harleensekhon151
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Carleton University Department of Economics

ECON1001C - Introduction to Economics

Assignment #1

Due date: Oct. 10, 2018 (Wednesday)

Discussion group: C02

Student number: 101105169 S

Student Name: Hans, Jashan

Discussion group: C02

Student number: 101107865

Student Name: Toor, Armaan

Discussion group: C03

Student number: 101117971

Student Name: Dhaliwal, Pardeep


Chapter 3: Question 11

Soy Milk Coffee

Brazil 90ml/hr (30ml S = 10ml C) 30ml/hr (30ml C = 90ml S)

Peru 36ml/hr (30ml S = 20ml C) 24ml/hr (30ml C = 45 ml S)


A. Brazil has the absolute advantage in coffee because they can produce

30ml of coffee per hour and Peru can only produce 24ml of coffee per

hour.

B. Peru has the comparative advantage because they only have to give

up 36ml of soy milk to produce 24/ml of coffee in an hour. Brazil has to

give up 90ml of soy milk in order to produce 30ml of coffee in an hour.

Since Peru’s opportunity cost is lower they have the comparative

advantage over Brazil.

C. Brazil will import coffee because Peru has a lower cost to produce

coffee. Brazil will specialize in producing soy milk because they can

produce 54ml more soy milk than Peru in an hour. It cost Peru 45ml of

soy milk to produce 30ml of coffee compared to Brazil cost who has to

forgo 90ml of soy milk to produce 30ml of coffee. Therefore, Brazil will

import the coffee because of Peru’s lower opportunity cost.

D. The cost of coffee ranges from 45ml of soy milk to 90ml of soy milk. If

both countries decide to trade they both benefit. Brazil benefits

because they without trade they would have to give up 90ml of soy milk

for 30ml of coffee but with trade, they are only giving 60ml of soy milk

for 30ml of coffee. Peru benefits because they are without trade they

are giving up 20ml of soy milk for 30ml of coffee but with trade, they

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only have to give up 10ml of soy milk for 30ml of coffee. Thus, both

countries benefit from the trade.

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Chapter 5: Question 3

A.

i. Price elasticity of demand = % change∈quantity ÷ % change∈ price

= [ (32-40) / ( (32+40) /2 )] x100 / [ (10-8) / ( (10+8) /2 ) x100) ]

= [ (-8/36) x100 ] / [ (2/9) x100 ]

= (-200/9) / (200/9)

= -1

Therefore, when the income is $10 000 the elasticity is -1, meaning it is inelastic.

ii. ped=¿ [ (45-50) / ( (45+50) /2 )] x100 / [ (10-8) / ( (10+8) /2 )

x100) ]

= [ (-2/19) x100 ] / [ (2/9) x100 ]

= (-200/19) / (200/9)

= -0.47

Therefore, when the income is $12 000 the elasticity approximitly -0.47, meaning it is

inelastic.

B.

i. Income elasticity of demand =

% change∈quantity ÷ % change∈income

= [ (30-24) / ( (30+24) /2 )] x100 / [ (12 000-10 000) / (22 000/2)

x100) ]

= [ (6/27) x100 ] / [ (2 000/11 000) x100 ]

= (200/9) / (200/11)

= 11/9

= 1.22

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Therefore, when income increases from $10 000 to $12 000 and the price is $12 the

income elasticy of demand is 1.22, meaning it is elastic.

ii. ied=¿[ (12-8) / ( (12+8) /2 )] x100 / [ (12 000-10 000) / (22 000/2)

x100) ]

= [ (4/10) x100 ] / [ (2 000/11 000) x100 ]

= (40) / (200/11)

=2.2

Therefore, when income increases from $10 00 to $12 000 and the price is $16 the

income elasticity of demand is 2.2, meaning it is elastic.

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Chapter 6: Question 10

A. The effect of the 50 cents per cone subsidy on the demand curve for ice-

cream cones is shown in the graph below.

B. The consumers will gain from the effect since they will be paying a cheaper

price for the cones after the subsidy.

The producers will gain from the subsidy since the government will be paying

the 50 cents to them.

The government will face a loss from the subsidy since they will no longer

receive a 50 cents for each cone purchases

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Chapter 7: Question 6

A. Supply curve shifts to the right as production costs decrease and the quantity

of goods increase.

B. The consumer surplus increases from area p1 to p2.

C. Consumers benefit from elastic demand because of lower production costs.

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