Econ 102 Homework #1 McLeod
Late homework will not be accepted!
1. (36 points) Assume Georgia and Alabama each have 100 acres of farmland. The following table gives hypothetical figures for yield per acre in the two states:
Oranges 12 4
Grapefruit 18 3
a) (4 points) What is the opportunity cost (in terms of the amount of Grapefruits given up) of producing 24 Oranges in Georgia?
b) (4 points) What is the opportunity cost (in terms of the amount of grapefruits given up) of producing 24 Oranges in Alabama?
c) (8 points)
Who has the absolute advantage in the production of oranges?
Who has the absolute advantage in the production of grapefruits?
Who has the comparative advantage in the production of oranges?
Who has the comparative advantage in the production of grapefruits?
d) (8 points) In this exercise, you will find actual points on the combined Production Possibilities Frontier (PPF) of the two states. For each of the following values of one good, calculate the maximum amount of the other good that the two countries could produce working together.
e) (12 points).
In the space below, draw the graph of the COMBINED Production Possibilities Frontier. Put Oranges on the Vertical axis, and Grapefruits on the Horizontal axis. Make sure your graph is accurate and carefully labeled in order to receive full credit.
2. (14 total points) Suppose the demand for baseball hats in State College is given by Qd = 280 – 2P where Qd is the quantity demanded, and P is the price of baseball hats. Also, suppose the supply of baseball hats is given by Qs = 6P – 40, where Qs is the quantity supplied of baseball hats
a) (4 points) Calculate the equilibrium price of baseball hats and the equilibrium quantity of baseball hats in State College.
P* = ___________________________________
Q* = ___________________________________
b) (10 points) On a single graph, graph the demand and supply of baseball hats. Make sure your graph is accurate and carefully labeled. Put Price on the vertical axis and Quantity on the horizontal axis. On your graph, label the equilibrium price P*, and the equilibrium quantity Q*.