Assignment 1 Questions For Chapters 1–5 By Zainab Has

Assignment 1 Question Chapters 1 2 3 4 5 Marksq1 Zainab Has A

Analyze questions related to consumer budget constraints, international trade advantages, and market equilibrium using supply and demand data.

Paper For Above instruction

The assignment encompasses three core economic concepts: consumer choice under budget constraints, comparative advantage and mutually beneficial trade, and market equilibrium analysis. Each component explores fundamental economic principles through practical scenarios, emphasizing critical thinking and application of economic theory.

Budget Constraint and Consumer Choice

Zainab’s weekly budget of $48 imposes a limitation on her consumption of magazines and pies. The maximum number of magazines she can purchase is calculated by dividing her total budget by the price per magazine. At $8 per magazine, she can buy a maximum of 6 magazines ($48 ÷ $8). Similarly, the maximum number of pies, priced at $24 each, is 2 ($48 ÷ $24). Graphically, the budget constraint is represented by a straight line connecting the points (0 pies, 6 magazines) and (2 pies, 0 magazines), with the slope indicating the opportunity cost of one more pie in terms of magazines. The slope of the budget line is the ratio of the price of pies to magazines, which is $24/$8 = 3, indicating that each additional pie costs Zainab 3 magazines in forgone consumption. The opportunity cost of purchasing a pie is the number of magazines Zainab must give up, which is 3 magazines. This illustrates the principle of opportunity cost, where every choice incurs a sacrifice of alternative goods or services.

International Trade, Comparative Advantage, and Specialization

The comparison between China and Paraguay highlights the concepts of absolute advantage and comparative advantage. Based on the production times, China can produce 1 kg of coffee in 120 minutes, and Paraguay can do so in 150 minutes. Therefore, China has an absolute advantage in coffee production because it takes fewer minutes to produce the same quantity, making it more efficient overall. When considering which country should produce coffee, it is logical that China should specialize in coffee production due to its relative efficiency in this area, despite its comparative advantages potentially in other goods.

When countries trade, those with a comparative advantage in a good should specialize and export that good. Since China can produce coffee more efficiently, it will likely export coffee to Paraguay, which has a relative disadvantage in its production. The trading ratio, where 2 kg of soybeans trade for 1 kg of coffee, benefits both countries by allowing each to consume at a point outside their individual production possibilities frontiers, thus increasing overall efficiency and welfare. Paraguay benefits by obtaining coffee at a lower opportunity cost than producing it domestically, while China gains by exporting coffee and gaining soybeans through the trade ratio, illustrating the principle of mutually beneficial trade based on comparative advantage.

Market Equilibrium in the Petrol Market

The table depicts the relationship between price, quantity demanded, and quantity supplied, illustrating market equilibrium phenomena. At the equilibrium price, the quantity demanded equals the quantity supplied. Excess supply (surplus) occurs when quantity supplied exceeds quantity demanded at a given price, leading to downward pressure on the price. Conversely, excess demand (shortage) occurs when quantity demanded exceeds quantity supplied, which exerts upward pressure on prices.

If the government caps the petrol price at $1.30 per gallon and the quantity supplied at this price is 575 million gallons, the market outcome depends on the equilibrium condition. Given the law of demand and supply, one would expect a mismatch: if the quantity demanded exceeds supplied at this capped price, shortages will occur; if it is less, surpluses may develop. Typically, a price ceiling below the equilibrium price results in a shortage because producers are less willing to supply petrol at lower prices, leading to decreased production and potential rationing issues. The actual market response depends on the specific demand and supply curves, but generally, price caps aimed at making essential goods affordable can cause long-term supply shortages, inefficiencies, and black markets.

References

• Krugman, P., Wells, R., & Graddy, K. (2018). Economics. Pearson Education.
• Mankiw, N.G. (2020). Principles of Economics. Cengage Learning.
• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. McGraw-Hill Education.
• Samuelson, P. A. (1954). The transfer problem. Economics Journal, 64(255), 137-147.
• Feenstra, R. C., & Taylor, A. M. (2017). International Economics. Worth Publishers.
• Varian, H. R. (2014). Intermediate Microeconomics. W. W. Norton & Company.
• Frank, R. H., & Bernanke, B. S. (2019). Principles of Economics. McGraw-Hill Education.
• Gwartney, J., Stroup, R., Sobel, R., & Macpherson, D. (2018). Economics: Private and Public Choice. Cengage Learning.
• McConnell, C. R., Brue, S. L., & Flynn, S. M. (2018). Economics. McGraw-Hill Education.
• Hubbard, R. G., & O'Brien, A. P. (2019). Microeconomics. Pearson Education.