Problem Set #1 Please submit your answers through the D2L assignment dropbox. Please draw all graphs by hand and use the answer sheets provided separately. 1. Suppose your favorite band is on tour and coming to your area. Tickets are $400, and you take a day off from work for which you could have earned $150. What is your opportunity cost of going to the concert? 2. It takes 1 hour to travel from New York to Washington 0.6. by air and 4 hours by train. The airfare is $200 and the train fare is $85. If a traveler wishes to minimize the total cost of making this trip, which mode of transportation should be selected if the traveler's opportunity cost of time spent in transit is $15 per hour? Justify your answer. How high would the wage need to be in order to choose a different method of travel? 3. Draw a production possibilities frontier {PPF} with missiles on the horizontal axis and butter on the vertical axis, illustrating these options, showing points A F. Option Missiles Butter 90 84 72 54 3O 0 'I'IH'IUDUJ'P m-waitca a. Can this country produce 72 units of butter and 4 missiles? Yes or no? Where would this point lie relative to the PPF? b. What is the trade-off when moving from point B to C? c. What is the opportunity cost of increasing missile production from 3 to 4 units? d. What is the opportunity cost of increasing butter production from 30 to 54 units? e. What is the maximum amount of butter that can be produced, if all resources are devoted to butter production? f. Can this country produce 3 missiles and 40 units of butter? Yes or no? Where would this point lie relative to the PPF? 4. Suppose the information given in question 3 represents the PPF1. Draw a new PPF diagram and illustrate what happens when the missile sector experiences an increase in new resources and technology. Show both PPF1 and PPF2 on your graph. 5. You and your friend Olivia are both volunteers at a cat rescue. The shelter supervisor asks the two of you to clean out kennels and haul bags of cat food from the donation area to the storage area. You know from your last time volunteering that you can clean out 10 kennels in an hour or move 5 bags of cat food. Olivia can clean out 6 kennels in an hour or move 6 bags of cat food. Olivia suggests that you split the tasks equally. Answer the following questions to determine if Olivia is making the best decision. a. Who has absolute advantage in doing each task? b. What are Olivia's opportunity costs of cleaning out kennels? c. What are your opportunity costs of cleaning out kennels? d. Who has a comparative advantage in doing each task? e. Who should do each task to minimize the amount oftime you both spend? f. Was Olivia's suggestion the best possible way to allocate your time? Why or why not? 6. Assume the following information shows the output of 2 goods in 2 countries before specialization. [Also assume that the same amount of resources are used by both countries and are equally divided between their two industries, B and T.] Backpacks Toasters England 20 10 Denmark 15 10 a. Which country has the absolute advantage in backpack production? b. In Denmark, the opportunity cost of producing 1 backpack is the loss of c. Which country has the comparative advantage in backpack production? d. If both countries produce according to the respective comparative advantages, what goods will England and Denmark end up producing after specialization? e. Gains from Trade; How many more units of total output (backpack + toasters) will be produced after specialization? f. Terms of Trade: If England and Denmark trade with each other, and England sends Denmark 10 backpacks, at least how many toasters will England expect in return? Be specific. g. Draw the PPF for England given the information above. Check your answer to question \"f\" by showing that the new Backpack/Toaster combination is outside the country's PPF. 7. The United States has an absolute advantage in making many goods, such as short-sleeved golf shirts. Why do Indonesia and Bangladesh make these shirts and export them to the United States? 8. For each of the following changes in the demand or supply curves in the pizza market below, draw a graph showing the old demand or supply curves as well as the new demand or supply Curve (whichever shifts). Also show how the equilibrium price and equilibrium quantity change on your graphs. Please show your work on 5 different graphs. Also, please be neat. Thanks! a. The price of mozzarella cheese rises. b. The health hazards of hamburgers {a substitute for pizza} are widely publicized. c. The price of tomato sauce falls. d. Consumers expect the price of pizza to fall next week. e. There is an increase in the number of pizza shops in the area. f. Pizza shop employees negotiate successfully for higher wages. 9. If the minimum wage is increased, many individuals believe that the unemployment rate will rise. Use a supply and demand diagram to support this belief. Assume that the current minimum wage is an effective and binding wage floor. 10. Suppose the US. government places a price ceiling on the price of gasoline at $2 per gallon, as shown in the diagram below. Source: Eric Chiang, Macroeconomics - Principles for a Changing World, 2023. a. Would a shortage or surplus result, and how large would it be? h. Calculate the effect of this policy in terms of the changes in consumer or producer surplus. Don't just say they will rise or fall. Instead, indicate in 5555 how much they will rise or fall. c. How much deadweight loss is created? d. What will happen if the price ceiling were increased to $4 per gallon? 11. The hypothetical economy shown below produces 3 goods: Good A, Good B, and Good C. The following information shows the production and prices for three goods over three years. Use 2021 as a base year {i.e., 2021 = 100). Year 2020 Year 2021 Year 2022 Quantity of Good A 10 12 14 Price of Good A $0.50 $1.00 $1.50 Quantity of Good B 3 6 9 Price of Good B $1.00 $2.00 $3.00 Quantity of Good C 20 20 20 Price of Good C $0.25 $0.25 $0.25 a. Calculate the nominal GDP (or current dollar GDP) for 2022. b. Calculate the real GDP (or constant dollar GDP] for 2022. c. Calculate the real GDP for 2021. d. What is the real economic growth rate from 2021 - 2022? e. If the population of the hypothetical economy above was equal to 15 individuals, then calculate the per capita real GDP for 2022. f. What is the GDP deflator for both 2021 and 2022? g. What is the GDP deflator inflation rate for 2021 - 2022? h. Suppose the base year is updated to 2022. What would be the new value of real GDP for 2021? i. With the new base year (2022), would the GDP deflator inflation rate increase, decrease, or stay the same between the years 2021 - 2022? INSTRUCTIONS: Submit through the assignment dropbox. Emailed assignments won't be accepted for credit. Draw any required graphs by hand. Please write legible and dark enough so that your work can be read online (or on paper). Use only the answer sheet below to submit your solutions. Show your work only if asked for. Submit with w attachment only, not multiple attachments. Call the Canvas Help Desk (303- 352-7548) if you need assistance with this. Acceptable attachments are docx, pdf, or jpeg only. 1. Opportunity cost of going to the concert = S 2. Opportunity cost by train =5 Opportunity cost by air = 5 The cheapest mode of travel = A wage above 5 would require a different mode of travel. 3. Illustration of the PPF: a. Yes or no? Indicate this combination on your graph and label it as point "G\". c. opportunity cost = d. opportunity cost = e. units of butter f. Yes or no? Indicate this combination on your graph and label it as point \"H\". 4. Illustration of the new PPF: 5. a. Cleaning Kennels: Hauling Bags of Cat Food: b. For Olivia, the opportunity cost of cleaning 1 kennel = c. Your opportunity cost of cleaning 1 kennel = d. Cleaning Kennels: Hauling Bags of Cat Food: e. Cleaning Kennels: Hauling Bags of Cat Food: f. Please justify your answer comparing the amount of output produced in one hour using Olivia's suggestion compared to yours. With Olivia's suggestion: Number of kennels cleaned: Number of Bags Moved: With your suggestion: Number of kennels cleaned: Number of Bags Moved 6. has the absolute advantage in backpack production. b. In Denmark, the opportunity cost of 1 backpack = has the comparative advantage in backpack production. should produce backpacks and _ should produce toasters. _ more units. f. England wants at least _ toasters in return. g. Draw the PPF for England on the graph below. 8. Show how the demand or supply shifts on the graphs below. Also indicate the changes in the equilibrium price and equilibrium quantity on your graphs. Thanks! 9. Minimum Wage Diagram showing a rise in the unemployment rate. 10. a. million of gallons b. Effect on consumer surplus: Effect on producer surplus: c. Deadweight loss = $_ d. Price = $_ and Quantity =_ at $4 per gallon