Eljon Rrodhe

Problem Set 1
1-) Harry M. Markowitz is my favorite Nobel Prize laureate in economics. The way that he
introduced the management of the portfolio as a whole, instead of looking at singular assets,
changed the entire perspective of financial institutions.
2-)
i) Macro
ii) Micro
iii) Micro
iv) Macro

3-)
a) Marginal benefit means additional benefit of a choice. Ex: The social network one gets
after buying an instrument.
b) Sunk cost fallacy is the phenomenon in which the initial investment amount deludes the
person in making a wrong choice. Ex: a person who doesn’t want to leave the country as
they have already spent decades building a life in their home country.
c) Opportunity cost is the second-best choice after the choice made. Ex: If one must
choose between doing the economics assignment and going out, and the person
chooses doing the assignment then the opportunity cost of doing the assignment is
going out.
d) The invisible hand is the market balancing itself with the price mechanism. Ex: As more
people want to eat lobsters, and as the lobsters are scarce, the price of lobsters will
increase.
e) Positive economics is the part of economics that finds out and explains how society and
economics work. Ex: Analysts of an investment bank have found that decreasing the
entry level of a pooled fund would increase the number of customers, but at the same
time it would increase the fund's volatility.
f) Normative economics is the part of economics that makes decisions and policies, it is
mostly a value-based sector of economics. Ex: Citizens that don’t have the right to vote
should not pay taxes.
g) The art of economics (political economics) takes normative decisions based on positive
economic data. Ex: After the reports on income-distribution equality that has come out
this year, a decision of decreasing the taxes on middle-class families has been taken.
 h) Laissez-Faire means to “let them do” in French, thus it is the idea that the market will
regulate itself. Ex: after the privacy scandals of company x, the stock price crashed.
i) Ceteris paribus means to leave every other variable as a constant. Ex: A model that only
visualizes the relation between demand and price.

4-) C = 75y/100 + 100

5-)
a) y = (2x – 22) / 3
b) y = (x+14)/3

c) y = (x + 16)/4
6-)
a) Graphs a, b, and c are linear.
b) Graphs a, e, and g are increasing for all x
c) Graphs b, d, and f are decreasing for all x
d) Graph a is the only one increasing at a constant rate for all x
e) Graph b is the only one decreasing at a constant rate for all x
f) Graph e is the only one increasing at an increasing rate for all x
g) Graph g is the only one increasing at a decreasing rate for all x
h) Graph f is the only one decreasing at an increasing rate for all x
i) Graph g is the only one decreasing at a decreasing rate for all x

7-)
a) -7/8
b) -1/2
c) -3
8-)
a) y > 2x – 1
 b) x + 2y =< 5

9-)
a) It does not result in any changes
b) It will make the S intercept go right or up depending on where it is on the graph
c) It does not result in any changes
10-)
a)

b) Yes, it can, but it is not efficient.

c) No, it cannot, it is not attainable.
d) The opportunity cost of increasing the textile production from 200 units to 400 units is
300 units of High Tech. The opportunity cost per unit of textile is 1.5 units of high-tech.
e) The opportunity cost of increasing the textile production from 400 units to 600 units is
400 units of high-tech. The opportunity cost per unit of textile is 2 units of high-tech.
f) Yes, the principle of increasing opportunity cost does hold for this economy.

11-)
a) If the company produces 90 tons of steel the maximum amount of wheat it can produce
is 25 tons.
b) The maximum quantity of wheat that can be produced is 100 tons.
c) The opportunity cost of increasing the production of steel from 80 tons to 90 tons is 20
tons of wheat.
d) The opportunity cost of increasing the production of steel from 90 tons to 100 tons is 25
tons of wheat.
e) The efficient combination points are A, B, C, and D.
f) The inefficient combination points are G and E.
g) The only unattainable production combination point is F.
h) The attainable production points are A, B, C, D, E, and G