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Engineering Economics

4. The accompanying table lists the cross-price elasticities of demand for several goods,where the percent quantity change is measured for the first good of the pair, and the percent price change is measured for the second good.

a. Explain the sign of each of the cross-price elasticities. What does it imply about the relationship between the two goods in question? (3 marks)

b. Compare the absolute values of the cross-price elasticities and explain their magnitudes. For example, why is the cross-price elasticity of McDonald's burgers and Burger King burgers are less than the cross-price elasticity of butter and margarine? (3marks)

c. Use the information in the table to calculate how a 5% increase in the price of Pepsi affects the quantity of Coke demanded. (2 marks)

d. Use the information in the table to calculate how a 10% decrease in the price of gasoline affects the quantity of SUVS demanded. (2 marks)

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Engineering Economics

3. Ah Beng, Muthu, Ali, and Ramjit have just made a documentary movie about their childhood life. They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their Internet service provider charges them a fee of $4. The 4brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film.

a. Calculate the total revenue and the marginal revenue per download. (2 marks)

b. Ah Beng is proud of the film and wants as many people as possible to download it.Which price should he choose? How many downloads would be sold? (2 marks)

d. Ali wants to maximize profit. Which price should he choose? How many downloads would be sold? (2 marks)

c. Muthu wants as much total revenue as possible. Which price should he choose? How many downloads would be sold? (2 marks)

e. Ramjit wants to charge the efficient price. Which price should he choose? How many downloads would be sold? (2 marks)

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Engineering Economics

2. A steel manufacturer is located close to Kuala Lumpur. During production, it emits carbon monoxide which creates an external cost to the local community. The private cost of production creates the external cost to the public and the car producers incurs the private benefit.

Draw a graph to show the market price and quantity and plot the effects of includingexternal costs. Show the socially optimal quantity of steel. (2 marks)

Show the area of net welfare loss on your graph. (2 marks)

Pigouvian Tax can be employed to deal with the problem of external costs. Show in the graph and explain how the tax can solve the problem. (2 marks)

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Engineering Economics

1. The countries of X and Y produce diamonds and pearls. The production possibilities scheduled below describes their potential output in tons per year: (14 marks)

a. What is the opportunity cost of diamonds for each country? (1 mark)

b. What is the opportunity cost of pearls for each country? (1 mark)

In which good does Country X have a comparative advantage? (1 mark)с.

d. In which good does Country Y have a comparative advantage? (1 mark)

e. Suppose Country X is producing and consuming at point B on its production possibilities curve and Country Y is producing and consuming at point C on its production possibilities curve. Construct a table to explain why both nations would benefit if they specialized in each good. (5 marks)

f. Draw a graph and use it to explain how Country X and Country Y benefit if they specialize and Country X agrees to trade 50 tons of diamonds to Country Y and Country X receives 50 tons of pearl in exchange. (5 marks)

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Engineering Economics

\text { U.S.: U(S,L) }=5 \cdot 6 L^{4} \text {. This makes } M U_{S}=.6 \frac{L^{4}}{S^{4}} \text { and } M U_{L}=.4 \frac{S^{6}}{L^{6}}

\text { Canada: U(S,L)=S.4L }{ }^{.6} \cdot \text { This makes } M U_{S}=.4 \frac{L^{6}}{S^{6}} \text { and } M U_{L}=.6 \frac{S^{4}}{L^{4}}

You'll find that there will be something a little strange about the free trade outcome.won't spoil the surprise. (Aren't you excited? Silly me, of course you're excited.) Beprepared.I

a. In autarky, what is the U.S. consumption/production of S and L?For Canada?

b. What is the autarky utility level for the U.S.?For Canada?

c.When trade begins, which country will specialize in/export Lumber?

d. Exactly what will Canada produce when trade begins? How much will it export to the U.S.?

e. Will the U.S. be satisfied by Canadian exports? If not, what does that mean for the production in the U.S.? What must the world price of Canada’s export be?

f. Now that we know what the price is of Canada’s export, how much of the import does it consume? What is Canada's post trade utility?

g. What is the final trade outcome for the U.S.? Has the U.S. benefited from trade?Why or why not?Has the U.S. suffered from trade?

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Engineering Economics

Consider 2 countries, Holland and Sweden (H and S). The marginal productivities of one year of labor in the industries Machinery (M) and Furniture (F) are given in the following table:

Each country has a population of 10 million people, all of whom provide one unit of Labor.

a. Graph the PPFS for Holland and Sweden. Throughout the problem, put Machinery on the X-Axis.

As in lecture, assume that the national utility function is the same in each country and given by a Cobb-Douglas formula: U(M,F)=M'²F². This makes

M U_{M}=\frac{1}{2} \frac{F^{\frac{1}{2}}}{M^{\frac{1}{2}}} \text { and } M U_{F}=\frac{1}{2} \frac{M^{\frac{1}{2}}}{F^{\frac{1}{2}}}

b. What is the formula for the Marginal Rate of Substitution?

c. In autarky, what is the production/consumption levels of M and F in Holland?InSweden?

d. What is the utility level for Holland in Autarky? For Sweden?

e. Plot the excess demand and excess supply curves for Machinery at world price ratios(P=Pm/Pf) bet greater than 1. (As part of this, you’ll need to determine which country is the excess demander and which is the excess supplier for M.)

f. At what price ratio does excess demand equal excess supply for Machinery?

g. At the price ratio you found in part f, how much Furniture is exchanged across the countries?

h. After trade, what is the utility level for Holland? For Sweden?

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Engineering Economics

1. (Ricardian PPF: 20 points) Suppose the U.S. needs 20 units of labor to make a 100 tons of steel and 30 units of labor to produce 900 feet of lumber. In Canada, 20 units of labor are required to produce a 60 tons of steel and 25 units of labor to produce 1,000 feet of lumber.Assume the marginal productivities of labor are constant in each country.Assume that U.S. has a population of 300 million and Canada has 35 million, all of whom provide one unit of labor.

What is the marginal product of labor in the U.S. for steel?For lumber?а.

b. What is the marginal product of labor in Canada for steel?For lumber?

c. Which good, if any, does the U.S. have an absolute advantage in production? Canada?

d. Which good, if any, does the U.S. have a comparative advantage in production?Canada?

е.Graph the PPFS for U.S. and Canada. Plot Steel on the X-axis.

f. What is the autarky price ratio in the U.S.? In Canada?

g. If the U.S. and Canada began to trade, the free trade price ratio would lie in the interval[L,H]. What are L and H?

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Engineering Economics

Q4. For the given data, calculate the following:

а.Nominal GDP for all the years

b. Real GDP for all the years

C.GDP Deflator for all the years

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Engineering Economics

Q3. For the given data, calculate the Consumer Price Index (CPI) for each year using 2017as the base year. You are also required to calculate the inflation rate for 2018 and 2019.

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Engineering Economics

Q2. "Money supply, interest rates and inflation are related with each other". With reference to the given statement examine the relationship between money supply,interest rates and inflation. Also explain the THREE frequently used monetary policy tools used by central bank.

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