IR 213: Professor Graham
Homework 1
th
Due January 26 , 2016 at the beginning of class.
Late homeworks are not accepted.
Directions: Type your answers into this word document. Type your name in the upper
right. Print it out and hand in a hard copy in class.
Xavier
30
Yadier
price
price
27
21
24
18
21
15
18
15
12
12
9
9
6
6
3
3
D
3
6
9
12
15
D
18
21
24
quantity
3
6
9 12 15 18 21 24 27
quantity
1. If these are the only two consumers in the market, then the market quantity demanded at a price of $6
is:
2. Holding all other things constant, a higher price to play a round of golf would
a. increase the quantity demanded of rounds of golf.
b. increase the price of golf clubs.
c. decrease the quantity of golf clubs sold.
d. decrease the demand for other summer recreational activities.
3. Suppose there is a decrease in the price of corn. If corn is an input into the production of ethanol, we
would expect the supply curve for ethanol to
a. shift rightward.
b. shift leftward.
c. become flatter.
d. remain unchanged.
4. Today's supply curve for ipods could shift in response to a change in
a. today's price of ipods.
b. the number of buyers of ipods.
c. the expected future price of ipods.
d. All of the above are correct.
Explain your answer to number 4 (one sentence):
40
price
36
32
S
28
24
20
16
12
8
4
D
2
4
6
8
10
12
14
16
18
20
quantity
5. What is the equilibrium price and quantity in this market?
If the government established price controls that set the price at $4:
A. How many units would buyers demand?
B. How many units would producers produce?
C. Does this create a surplus or a shortage? How big of a surplus/shortage?
6. A movement downward and to the right along a demand curve is called a(n)
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
7. A decrease in the price of a good will
a. increase demand.
b. decrease demand.
c. increase quantity demanded.
d. decrease quantity demanded.
price
A
P
B
P'
D
Q
Q'
quantity
8. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
Price
Supply A
Supply B
Supply C
Quantity
9. Which of the following would cause the supply curve to shift from Supply B to Supply A in
the market for tennis racquets?
a. an increase in the price of tennis balls
b. an expectation by firms that the price of tennis racquets will decrease in the very near
future
c. a decrease in the price of tennis racquet strings
d. a decrease in the number of firms selling tennis racquets
Price
S
10
9
8
7
6
5
4
3
2
1
D
1
10a..
a.
b.
c.
d.
2
3
4
5
6
7
8
9
10
Quantity
At a price of:
$2, there is a shortage of 6 units.
$5, there is a surplus of 25 units.
$5, there is a shortage of $25.
$7, there is a shortage of 4 units.
10. At what price would there be a surplus of 4 units?
11. All else equal, what happens to the equilibrium price of cars if the price of steel
increases? What happens to the equilibrium quantity?
12. If a drought destroys the wheat crop, what happens to the demand for corn? What
happens to the price of corn? What happens to the supply of bread? What happens to the
price of bread? What happens to the demand for wheat?
Table 2.2. Output possibilities for South Korea and Japan
Country
South Korea
Japan
Output per worker per day
Tons of steel
VCRs
80
40
20
20
13. Referring to Table 2.2, the opportunity cost of one VCR in South Korea is: (Hint: How many
tons of steel?)
14. Refer to Table 2.2. According to the principle of comparative advantage, Japan should:
a. Export steel
b. Export VCRs
c. Export steel and VCRs
d. None of the above; there is no basis for gainful trade
15. Refer to Table 2.2. With international trade, what would be the maximum amount of steel that
South Korea would be willing to export to Japan in exchange for each VCR?
16. Refer to Table 2.2. With international trade, what would be the maximum number of VCRs that
Japan would be willing to export to South Korea in exchange for each ton of steel?
Figure 2.1. Production Possibilities Schedule
17. a. Referring to Figure 2.1, the relative cost of steel in terms of aluminum is:
b. The relative cost of aluminum in terms of steel is:
18. Concerning international trade restrictions, which of the following is false? Trade restrictions:
a. Cause nations to only export goods when they have absolute advantage
b. Reduce the volume of trade and the gains from trade
c. Limit specialization and the division of labor
d. May result in a country producing some of the product of its comparative disadvantage
19. Refer to Figure 2.1. If the relative cost of steel were to decrease, then the production possibilities
schedule would:
a. Become steeper
b. Become flatter
c. Shift inward in a parallel manner
d. Shift outward in a parallel manner
20. Explain in 2-4 sentences the difference between a change in demand (i.e. the demand
curve) and a change in the quantity demanded.
21. What are three things that might increase the supply of cars in the US (i.e. shift the
supply curve to the right)?
22. Explain in 3-6 sentences how a country can gain from trade even if its trading partner
has an absolute advantage in all products.
23. Bonus:
Given a two-country and two-product world, the United States would enjoy all the attainable gains from
free trade with Canada if it:
a. Trades at the U.S. rate of transformation
b. Trades at the Canadian rate of transformation
c. Specializes completely in the production of both goods
d. Specializes partially in the production of both goods
Explain your answer.