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Macro: 200
Micro: 201
Econometrics: 385
Ind Org: 345
Online resources
About Mr. Wood ____________________
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Study Problems for Econ 201 A TALE OF TWO ISLANDS Coconut Island In an hour, a Coconut Islander can harvest 1 banana or 4 coconuts. 1 banana = 4 coconuts In an hour a Banana Islander can harvest 4 bananas or 1 coconut. 1 banana = 1/4 coconut Application: Which island has the absolute advantage in bananas?__________________________. Which island has the absolute advantage in coconuts? __________________________________. One day, a trader appears in a canoe half full with a cargo of bananas and coconuts. She offers to trade bananas and coconuts one-for-one at both islands: 1. What happens at Coconut Island? Are the Coconut Islanders made better off by trade? 2. What happens at Banana Island? Are the Banana Islanders made better off by trade? ANOTHER TALE OF TWO ISLANDS North Island In an hour, a North Islander can harvest 1 pineapple or 4 mangoes. 1 pineapple = 4 mangoes South Island In an hour, a South Islander can harvest 1 pineapple or 2 mangoes. 1 pineapple = 2 mangoes Application: Which island has the absolute advantage in mangoes? ______________________. Which island has the absolute advantage in pineapples? _______________________________. Can both islands be made better off if they trade? One day, a trader appears in a canoe half full with a cargo of pineapples and mangoes. He offers to trade 3-for-1, that is, he will gladly pay three mangoes for every pineapple offered or pay a pineapple for every three mangoes offered: 1. What happens when he visits North Island? Are the North Islanders made better off by trade? 2. What happens when he visits South Island? Are the South Islanders made better off by trade? 3. Which island has a "comparative advantage" in pineapples? _____________________________. Which island has a "comparative advantage" in mangoes? _____________________________. 4. The final question: Is it necessary for two countries each to have an absolute advantage if trade is to make both countries better off?
Supply and Demand Analysis 1. Consider the market for corn. What happens to the price and quantity of corn if rainfall is so abundant that no irrigation is necessary? Illustrate your answer with a fully labeled diagram. 2. Consider the market for hot dog buns. What is the relationship between hot dog buns and hot dogs? What happens to the price and quantity of buns as the price of hot dogs goes down? Illustrate your answer with a fully labeled diagram. |
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Elasticity of Demand Custom Truck Covers, Inc. finds that when it raises the price of its truck covers from $200 to $400, quantity demanded falls from 10 per week to 6 per week. 1. What is the elasticity of demand in this region of the demand curve? Use the midpoint formula and show all work. 2. Is demand elastic, inelastic, or unit elastic? Based on your elasticity number, would total revenue go up or go down if Custom Truck Covers raised prices in this region of the demand curve? Explain. 3. Calculate total revenue at prices of $200 and $400 to confirm your answer to part (2). |
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Profit Maximization
1. Fill in the blanks for total revenue and marginal revenue. 2. Calculate marginal cost for each level of output. 3. At which output does the firm come as close as possible to MR=MC without going over? 4. What is the firm’s highest possible profit? (Note: This exercise is like Practice Problem 2 in the Study Guide’s Chapter 14.) P Q TR MR TC MC Profit $6 0 __ $2 __ __ __ $6 1 __ $4 __ __ __ $6 2 __ $8 __ __ __ $6 3 __ $13 __ __ __ $6 4 __ $20 __ __ __ $6 5 __ $29 __
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