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investment

$100,000
probs

Risky project

0.5

safe project

0.9

1 lowest rate of return for safe project


$90,000
2 lowest rate of return for risky project
$50,000

CHINA
PLANES
COMPUTERS

100
2000

USA
PLANES
COMPUTERS

120
5000

1 OPPORTUNITY COST OF A PLANE IN EACH OF CHINA AND USA

FOR CHINA
20

FOR USA

41.6666666667

2 TOTAL PREODUCTION OF PLANES FOR EACH OF CHINA AND UNITED STATES


40% PLANES
60% COMP
CHINA
PLANES

40

We know the opportunity cost in china for a plane is


20*40
total production will be

20 computers

800
5840

USA
PLANES

48

WE know the opportunity cost for each plane in usa is 42 computers

42*48

2016

total production will be

7064

3 Total production after specialisation

China
opp cost on specialisation
original

20*100

total

2000
2000
4000

USA
opp cost on specialisation
original
TOTAL

42*120

5040
5000
10040

omputers

1 IMMEDIATE 3EFFECT ON EQUILIBRIUM PRICE AND QUANTITY OF BEEF

Slaughtering the cows will result in an increase in the supply of beef to the market,
which will in turn lead to a decrease in the equilibrium price of beef and an increase in the equilibrium

Market for beef

2
. Chicken and beef are substitute goods

market for chiken

As the price of beef decreases, consumers will buy more beef and less chicken. The demand for chick

3
As it happens, the slaughter of beef cattle has coincided with a decrease in consumers' income.

Assuming that steak is a normal good while hamburgers are an inferior good, use a supply-and-deman

diagram for either market to illustrate the combined effect of the two aforementioned events on the e

soln

Steak: S increases, D decreases.

Hamburgers: S increases,

The price of steak will decrease

The equilibrium quantity o

crease in the equilibrium quantity of beef.

n. The demand for chicken will decrease, causing a decrease in the equilibrium price and quantity of chicken

onsumers' income.
use a supply-and-demand

entioned events on the equilibrium price and quantity of hamburgers and steak.

amburgers: S increases, D increases

he equilibrium quantity of hamburgers sold will increase.

nd quantity of chicken

initial

$100,000

payback

$200,000

interest

10%

Present value
$100,000*(1/1.1^-3)

$75,131.48

ye I would finance them


soln 2
time value of money
if after 3 years you earn only a presnet value of

after 2 years present value is


$100,000*(1/1.1^-2)

then I would ac cept 170,000 today

$82,644.63

$75,131.48

Price elasticity of demabnd is equal to

Q^d= 1000- 2p
800

Qs=0.5p-10000
Qd=90000-1.5p
Equlibrium price and quantity will be;
0.5p-10000 = 90000-1.5p
2.0p=100000
p=50000
Computing consumer surplus
Qs= 0.5(50000)-10000

15000

Computing producer surplus


Qd= 90000-1.5(50000)

15000

3 New supply function


Qs = 0.5p-10000(+6000)
Qs= 0.5p-4000

4 New equlibrium price and quantity


Qs= 0.5p-4000
Qd=90000-1.5p
0.5p-4000 = 9000-1.5p
2.0p=13000
p=6500
5 Consumer and producer surplus
Qs= 0.5(6500) -10000

-6750

Qd=90000-1.5(6500)

80250

6 Total tax revenue and deadweight loss


1 unit= $6000 in tax
Qs= 0.5(6000)
dreaded loss

3000
-3750

7 New demand function if tax is imposed on consumers


Qd= 90000-1.5p

(6000+)90000-1.5P

8 New equlibrium price and Quantity


96000-1.5P = 0.5P -10000
2.0P = 1060000
P=56000

9 Consumer surplus , total tax revenue and dreadweight loss


consumer surplus
Qs= 0.5(56000)-10000
18000
total tax revenue
18000*6000

108000000

dreadweight loss
90000-1.5(56000)

-75000

1 Budget line equation


$2A+$1B = $10
A=5-B/2
A
5

Budget line

10 B

2 Opportunity cost of a banana


(10/5)

Opportunity cost of apples


(5/10)

0.5

3) If peters income increases to $20


new budget line will be as follows

$2A+$1B = $20
A=10-B/2

A
10

20
Opportunity cost of banana and apples
Banana

20/10

apples

(10/20)

2
0.2

4) Income still 10 but price of apples decrease by $ 1


$1A+$1B = $10
A
A=10-B
10

10

Opportunity cost of banana and apples


Banana

(10/10)

apples

(10/10)

5) Determining if (5,5) is affordable in both cases


when income is 10
$5A+$5B = $10
A=2-B
When income is 20
$5A+$5B = $20
A= 4-B
From Above budget line equation it is affordable at (5,5) for both incomes