Cosumnes River College Principles of Macroeconomics Problem Set 1 Due January 30, 2017

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1 Spring 0 Cosumnes River College Principles of Macroeconomics Problem Se Due Januar 0, 0 Name: Soluions Prof. Dowell Insrucions: Wrie he answers clearl and concisel on hese shees in he spaces provided. Do no aach era shees.. Colin believes he number of job offers he will ge depends on he number of courses in which his grade is a B+ or beer. He concludes from observaion ha he following figures are pical: Number of grades B+ or beer 0 Number of job offers a. Represen his daa in a graph wih he dependen variable on he horizonal ais. Be sure o clearl label our diagram. Grades of B+ or Beer + + Slope = + + Slope = / Job Offers b. Calculae he slope beween poins on he line. (You will have wo disinc segmens wih differen slopes.) Inerpre he slopes. Wha do he mean? Noe he reversal of he dependen and independen variables. This is eacl wha we do wih suppl and demand curves where we place quani, he dependen variable, on he horizonal ais. As a resul of his reversal, we mus consider he inverse of he slope raher han he slope iself. Doing his, we see ha along he firs segmen of he line, an increase of (from 0 o ) in he number of B+ or greaer grades leads o an increase of in he number of job offers. Along he second segmen, an increase in he number of grades of B+ or beer of leads o an increase in he number of job offers of. Principles of Macroeconomics: Problem Se Soluions Page

2 Principles of Macroeconomics: Problem Se Soluions Page. Solve he following for he unknown variable(s): a. b. c. Solve each for and se equal o each oher o solve for. Sub back in o solve for. X = and = c. ) ( and ) (. Find he slope and -inercep of Slope is Se = 0 o find he -inercep is.. Find he equaion of he line wih slope hrough he poin (, -) Use he poin-slope formula of m

3 . Find he and -inerceps of 0 00 and graph he equaion. -inercep is -inercep is -0. Calculae he slope of he line in he figure below: m. Calculae he slope of he line in he figure below: m Principles of Macroeconomics: Problem Se Soluions Page

4 . The following graph shows he producion possibiliies fronier for a small counr in he Caribbean. Producion Possibiliies Fronier Coconus A.B Sugar a. If he counr is currenl producing 0 coconus and 0 sugar, how man coconus mus he give up o make 0 sugar? 0 b. If he counr is currenl producing 00 coconus and 0 sugar, how man coconus mus he give up o move o 0 sugar? 0 c. Does his counr have increasing opporuni coss? Eplain how ou know ha he do or do no and wha i means o have increasing opporuni coss. Yes. The PPF ges seeper moving from 0 coconus and zero sugar o zero coconus and 00 sugar. The answers o a and b also illusrae he increasing opporuni cos. d. Give an eample of a combinaion of coconus and sugar ha is aainable bu no efficien and an eample ha is no aainable. An poin ha lies under he PPF, such as poin A is aainable bu no efficien. An poin above he PPF such as B is unaainable.. e. Wha wo facors migh shif he producion possibiliies fronier for his counr? Sae wha he facor is and hen give an eample relaed o he producion of sugar and coconus. Increased labor (sa from immigraion) more labor wih given land would increase producion. Improvemens in harvesing echnolog would have he same effec. Principles of Macroeconomics: Problem Se Soluions Page

5 9. Eplain how a producion possibili curve for agriculure goods and manufacuring goods would shif afer each of he evens described below: a. A drough in he Midwes reduces agriculural ield per acre. I would shif or roae inward along he ais labeled agriculural goods. b. Advances in compuer echnolog lower he cos of producing manufacured goods bu do no affec he cos of producing agriculural goods. I would shif or roae ouward along he ais labeled manufacuring goods. c. Civil war disrups he producion of all goods equall in he Unied Saes. I would shif in along boh aes. 0. A clohing accessor compan produces scarves and earrings. Below are he producion possibili combinaions i can produce wih he resources ha i has. Poin Scarves Earrings a. Draw he producion possibili curve in he space below placing earrings on he verical ais. a b c d e 0 f 0 g 00 h i 0 0 j k 0 0 Earrings Scarv es b. Suppose echnological advances increase producion of boh earrings and scarves b 0% wihou increasing coss. Demonsrae he effec of his innovaion on he producion possibili curve ou drew above. c. Wha is he slope of he PPF beween poins e and f? Wha does his slope mean? rise slope 0 run This means we mus give up 0 pairs of earrings o ge one scarf. d. Suppose he slope of he PPF were consan. (I isn ) If i were, wha would his indicae? I would indicae consan opporuni cos. Principles of Macroeconomics: Problem Se Soluions Page

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