Consider the PPF for clean air and automobile travel.
a. Explain why unregulated air pollution in automobiles would push a country inside its
PPF. Illustrate your discussion with a carefully drawn PPF for these two goods.
b. Next explain how putting a price on harmful automobile emissions would increase both
goods and move the country to its PPF. Illustrate by showing how correcting the “market
failure” would change the final outcome.
Step-by-step solution
Given the Following output schedule of a firm, calculate its marginal cost at different levels of output.
Units of Fixed Input-2
Units of Variable input - 0,1,2,3,4,5
Total output-0,10,25,50,65,70
Further, the price of fixed input is Rs. 200 per unit. And the price of a variable input is Rs. 100 per unit.
Assume that maize is a normal good. If the price of maize rises, then the substitution effect results in the person buying … of the good, and the income effect results in the person buying … of the good.
1.
more, more
2.
more, less
3.
less, more
4.
less, less
The sum of consumer and producer surplus is a measure of the economic well-being of a society.
Select one:
True
False
If the cost of producing an inferior product rises, and people’s incomes increase at the same time, the equilibrium price will …
1.
decrease.
2.
increase.
3.
stay the same.
4.
be indeterminate.
Use a graph to explain how the equimarginal principle can be applied to minimise production costs
for the following pair of equations determine algebraically the equilibrium price and output Q=6-p, QS=3P-2
Draw a demand curve for MP3 downloads. In your diagram, show a price of MP3 downloads per tune and the consumer surplus that results from that price. Explain in words what this consumer surplus measures.
Draw a supply curve for MP3 downloads. In your diagram show a price of MP3 downloads and the producer surplus that results from that price. Explain in words what this producer surplus measures.
The cost of producing Blu-ray DVD players has fallen over the past few years. Let’s consider some implications of this fact.
a. Use a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of Blu-ray DVD players sold.
b. In your diagram, show what happens to consumer surplus and producer surplus.
c. Suppose the supply of Blu-ray DVD players is very price elastic. Who benefits most from falling production costs – consumers or producers of Blu-ray DVD players?
Healthy Harry’s Juice Bar has the following cost schedules:
Q (VATS)
VARIABLE COST
TOTAL COST
$ 0
$ 30
1
10
40
2
25
55
3
45
75
4
70
100
5
100
130
6
135
165
a. Calculate average variable cost, average total cost, and marginal cost for each quantity.
b. Graph all three curves. What is the relationship between the marginal-cost curve and the average total- cost curve? Between the marginal-cost curve and the average-variable-cost curve? Explain.