Economic theory says ‘specialize in the good which you can produce at a lower opportunity

cost as compared to the other producer.

Opportunity Cost of city Z: of producing 1 butter (B) = 2 cheese (C).Hence opportunity cost
of 1 C = 1/2 B.

Opportunity Cost of city G: of producing 1 B = 5 C. Hence opportunity cost of 1 C = 1/5 B.

So Z specializes in Butter and G in Cheese. Z has a

comparative advantage over G in producing butter. Since, Z can

produce it at a lower opportunity cost and G has a comparative advantage in

producing Cheese. Since, G can produce it at a lower opportunity cost.

Elizabeth and Brian decide that the terms of trade are 8 loaves of bread

for 12 apples.

Name No Specialization Gains from

specialization and trade specialization
and no trade and trade

In the table above, after specialization and trade , Z and G are

better off. Because they can consume more butter and cheese.

Z and G decision to specialize and trade makes them

better off individually (consumes more butter and cheese). However,

their action has also increased the total production of butter and cheese

in the society as well (more butter and cheese for everyone!). Before specialization and trade,
Z was producing 4 units butter and G was producing 2 units butter. Therefore total butter
production was 6.

After specialization, Z produced 8 units butter and G 0 unit butter.

Therefore, total production is 8 units butter after specialization. Similarly, After

specialization, G produced 20 units cheese and Z 0 unit cheese. Therefore, total production is
20 units cheese after specialization.
Moral of the Story: Specialization and trade can make individuals and

societies better-off (they get to enjoy more goods and services).

3.From here we found that if the price of tea increses then the rate of buying cups of tea is
dcreasing. Here we can assume income as ceteris paribus. Because if we donot constant the
income of student then the relation of price and income might be balance.

Here through law of demand the behavior of buyers will be affected if the price of coffee
decreases. Demand of law says if the price of good rises, the quantity demanded of the goods
falls, and as the price of good falls, quantity demanded of the good rises, ceteris paribus.So
according to law of demand if the price of tea dicrese then the rate of buying cups will be
increasing. Here income is ceteris paribus.

2.A good the demand for which rises as income rises is called normal product. In my house
bread and apple are normal product.Because when my family income is increased,we actually
increase the quantity of bread and apple.Thats why I can say that bread and apple are normal
product for my family.

3.A good the demand for which falls as income rises is called inferior product.In my house
sugar and salt are inferior product.Because, when our family income rises,we actually buy a
less sugar and less salt.Thats why can say that sugar and salt is superior product for our
family.

4.Two goods that satisfy similar needs or desires is called substitute.If two goods are
substitutes,the demand for onr rises as the price of other rises.In my house breade is substitute
of rice and chiken is substitute of fish.In last week suddenly the price of breade and fish are
decreased in the market.Thats why my started to eat bread and fish instead of rice and chiken

5.Two goods that are used jointly in consumption is called complements.If two goods are
complements, the demand for one rises as the price of the other falls for the demand for one
falls as the price of other rises.In my house rise-daal and bread-butter are complements
goods.Recently, the price of daal and butter are increased.Thats why my family eat less daal
with less rice and less butter with less quantity of bread.

1.No. the law of demand does not apply to all the goods (products) and services that my
household consumes. The normal products, inferior product and nutral product actually
maintain the law of demand.But substitute and complements product does not maintain the
law od demand.
Substitute product does not follow the law of demand.For example: my family eat rice.But
now in the present market the price of bread is very cheap that’s why my family started to eat
bread instead of rice.So here bread is substitute of rice.

6) Discuss how the preferences of your household has changed due to the COVID pandemic.

Actually our preference are greately affected by information. In the time of COVID we know
that vitamin c is very helpful against covid.Thats why in that time my family bought a lot of
fruits,vagetablea etc means whichcontains vitamin c.Beside in the time of covid we maintain
hygine.So that our family bought a lot of hand sanitizer, savlon mask etc.

7.