Problem set 2

Problem set #2
Due on Monday, February 24th by 5:00 p.m. in the inbox outside of Hillcrest 214.

  1.  A Wall Street Journal article recently asked readers the following questions:
    1. An accident has caused deadly fumes to enter the school ventilation system where it will kill 5 children.  You can stop it by throwing a switch, but doing so will kill one child in another room.  Do you throw the switch?
    2. Say that a doctor can save five patients with an organ transplant that would end the life of a patient who is sick but not yet dead.  Does she do it?
    3. What is the difference, if any, between the two situations described in a and b?
    4. How important are opportunity costs in your consideration? What other criteria might guide your decision-making?
  2. Adam Smith, who wrote The Wealth of Nations, and who is seen as the founder of modern economics, also wrote The Theory of Moral Sentiments.  In it he argued that society would be better of if people weren’t so selfish and were more considerate of others.  How does this view fit with the view of economic reasoning presented in the Mankiw text?  Do you agree with Smith on this point?  Why or why not?
  3. Mankiw’s Principle #5 is that ‘Trade can make people better off.”  Listen to this recent report from NPR.  In this, has trade made both countries – the USA and China – better off?  Why or why not?
  4. Suppose that you receive this labor productivity data for airplane and bulldozer productivity from Brazil and Mexico

    Bulldozers               Airplanes

    Mexico        3 days per unit        12 days per unit
    Brazil           2 days per unit        10 days per unit

    1. What is the opportunity cost to Mexico of producing a bulldozer?
    2. What is the opportunity cost to Mexico of producing an airplane?
    3. What is the opportunity cost to Brazil of producing a bulldozer?
    4. What is the opportunity cost to Brazil of producing an airplane?
    5. Which country has the absolute advantage in the production of bulldozers?
    6. Which country has the absolute advantage in the production of airplanes?
    7. Which country has the comparative advantage in the production of bulldozers?
    8. Which country has the comparative advantage in the production of airplanes?
    9. Which of the following trade offers would be acceptable to both Mexico and Brazil, and why?
      1. 1 airplane = 6 bulldozers
      2. 1 bulldozer = 0.33 airplanes
      3. 1 airplane = 4.5 bulldozers
  5. State whether the following pairs of goods are complements or substitutes.  If you think a pair is ambiguous in this respect, explain why.)
    1. Tennis courts and squash courts
    2. Squash racquets and squash balls
    3. Ice cream and chocolate
    4. Cloth diapers and paper diapers
  6. What will happen to the equilibrium price and quantity of potatoes if population increases and a new, higher yielding variety of potato plant is developed?  Explain your answer and plot the relevant supply and demand curves.
  7. Your given the following demand and supply tables
    P                 D1              D2           D3
    $37             20                 4              8
    $47             15                 2              7
    $57             10                 0              6
    $67               5                 0              5P                 S1              S2           S3
    $37               0                 4            14
    $47               0                 8            16
    $57             10               12            18
    $67             10               16            20A.  Draw the market demand and supply curves
    B.  What is the excess supply/demand at price $37?  Price $67?
    C.  Label the equilibrium price and quantity
  8. Mankiw – Problems and Applications, Chapter 4. Problem 14 (p. 87 in the 6th Edition.)


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